Displaying items by tag: credit

The Federal Reserve’s tightening campaign surprisingly has had a muted impact on the broader economy as evidenced by continued expansion despite the highest rate in decades. In terms of the stated goal of curbing inflation, results are mixed as well. 

 

However, the vector which immediately responded to tighter policy is real estate given that affordability has declined due to higher rates. In some markets, activity has simply cooled, while in those with poor fundamentals, prices are falling more precipitously. 

 

Within real estate, commercial real estate (CRE) is the most challenged given oversupply and the recent rise of remote work. For Barron’s, Rob Csneryik covers why some contrarian investors are seeing opportunity in the beaten-down sector.

 

In essence, it’s a buyer’s market with so many traditional sources of funding out of the picture, leading to more favorable terms and higher returns. Further, there is less risk with values already down so much. Many believe that office occupancy rates will start to gradually rise especially if the economy does weaken which would give employers more leverage to force employees back to the office. CRE would also likely benefit from a mild recession as it would compel the Fed to cut rates which would turn a major headwind into a tailwind. 


Finsum: Commercial real estate is the weakest segment of the real estate market. However, some contrarians see opportunities amid the carnage.

 

Published in Eq: Real Estate

Ever since the Fed embarked on its tightening campaign starting in the early months of 2022, the real estate market experienced the most immediate impact due to rising mortgage rates negatively affecting home affordability.

 

Initially, publicly traded real estate stocks saw deep drawdowns while private real estate performed much better. Now, this gap is beginning to shrink as private real estate has been following public real estate lower. One factor is that it’s increasingly becoming clear that high rates are not going to disappear anytime soon due to the resilience of the economy and inflation. In fact, inflationary pressures seem to be reigniting given the recent strength in oil and auto workers striking.

 

In terms of when private real estate will bottom, some indicators to watch are an increase in transaction volume even at lower prices, a change in monetary policy, and increase in lending standards. Currently, all 3 are working against private real estate given that many markets are ‘frozen’ as sellers are unwilling to cut prices, while buyers don’t see many attractive deals at current yields. The Fed’s focus remains on stamping out inflation whether through further hikes or keeping rates ‘higher for longer’. Finally, lending standards are unlikely to loosen especially with so many banks struggling with balance sheet issues and/or an inverted yield curve. 


Finsum: Private real estate was immune to the weakness in public real estate for so long. Find out why this is starting to change.

 

Published in Eq: Real Estate

One of the consequences of tighter monetary policy is to curtail housing demand by squeezing affordability. As a result, all sorts of housing activity has cooled such as mortgage applications, new home construction, renovations, and house flipping. While there are all sorts of losers, it’s presenting an opportunity for many private real estate funds who are finding a buyer’s market.

 These funds raise money with multi year holding periods so are less affected by the change in the funding environment at least in the short and intermediate-term. Another factor in the real estate market is that many regional banks are pulling back from extending credit given their balance sheet concerns. Overall, it’s a risk for the broader economic outlook but a unique opportunity for private real estate investors.   

And, more money is being allocated to real estate - public and private. In the first-half of the year, 43% of institutions surveyed, increased their allocation to real estate by an average of 76 basis points. Sovereign wealth funds also increased real estate exposure from 6.9% to 7.9%. In terms of geography, private real estate continues to be dominated by North American investors.

 

Published in Eq: Real Estate
Saturday, 25 March 2023 09:58

REIT Exposure to Silicon Valley Bank Limited

According to analysis by S&P Global Market Intelligence, U.S. equity REITs have little direct exposure to Silicon Valley Bank, which had the second-largest bank failure in U.S. history. Office REIT Cousins Properties Inc. reported Silicon Valley Bank as its ninth-largest tenant by annualized rent as of 2022 year-end at just over $8.4 million, or roughly 1.2% of the REIT's total rental portfolio. The REIT leases 204,751 square feet of office space to the bank at its Hayden Ferry property in Tempe, Arizona. Boston Properties Inc. houses Silicon Valley Bank's Seattle office in its recently acquired Madison Centre property. In addition, Paramount Group Inc. leases office space to SVB Securities LLC, an entity under the SVB Financial Group umbrella, at 1301 Avenue of the Americas in Manhattan, N.Y. Alexandria Real Estate Equities Inc. reported in a March 13th news release that it has one lease with an affiliate of Silicon Valley Bank in the Greater Boston area market totaling 32,152 rentable square feet. The lease's annual rental revenue as of Dec. 31st, 2022, was $1.7 million, or 0.08% of the REIT's total annual rental revenue.


Finsum:According to S&P Global Market Intelligence, U.S. REITs had limited exposure to Silicon Valley Bank, with some REITS reporting that SVB made up a small percentage of their rental portfolios.

Published in Eq: Real Estate
Wednesday, 14 December 2022 12:22

Tidal Financial Launches First Active Credit ETF

Tidal Financial Group recently announced the launch of the Senior Secured Credit Opportunities ETF (SECD), its first actively managed credit ETF. The fund, which is managed by Gateway Credit Partners seeks to generate consistent income and preserve capital by investing in a combination of first-lien senior secured loans and secured bonds to businesses operating in North America. Gateway is a value-based credit manager that focuses on capturing fundamental and technical inefficiencies in the leveraged loan and high-yield bond market. The firm focuses on generating true alpha which they define as yield per turn of leverage significantly greater than their representative indices. It believes a “size arbitrage” exists in credit markets as rating agency models can over-emphasize size vs credit fundamentals. Tim Gramatovich founder of Gateway had this to say about the ETF launch, “At over $3 trillion, the US loan and high-yield bond markets offer investors a tremendous opportunity to generate yield. We believe SECD fills a much-needed gap in the actively managed corporate credit space particularly as it relates to the loan market.”


Finsum:Tidal Financial Group recently launched an actively managed credit ETF that aims to take advantage of higher yields in the loan market.

Published in Bonds: Total Market
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