ARENA PowerRead

Hedge Funds Eye Distressed Malls and Hotels

Adapted from Bloomberg News

December 11, 2020

Some hedge funds are considering investing in malls, hotels, and office buildings whose operations and market value have been hurt by Covid 19-induced slowdowns. Managers at some funds say these assets could be the most lucrative commercial real estate move of 2021.

Investments could include, for example, loans and bonds for restructured commercial real estate assets. There has been such wide variation in performance of existing securities that it has become a “credit-picker’s market”—meaning selection of individual debtors is crucial.

Arena Investors’ CEO Dan Zwirn said that although property valuations may be lower going forward, there are numerous opportunities. “We’ve been very active in participating in the restructuring of commercial real estate assets, in terms of hard money lending, bridge funding, and buying whole loans off of the banks,” Zwirn said. “That trend has only just begun.”

Zwirn noted that certain assets will need to be fitted with capital structures that make sense for continuing reduced values. And he warned against assuming that Covid is the only thing holding back many assets, particularly in the retail sector, where “When we see what the new world looks like”—meaning post-Covid—“it will be bad.”