A Surge of New Commercial Mortgage Opportunities Comes to Market

The pandemic has catalyzed a wave of new investment opportunities in commercial mortgages. In the last six months, more than $6 billion in commercial mortgages have hit the market as lenders try to reposition and strengthen their balance sheets.

Canyon Partners Real Estate has responded to the opportunity. The firm has acquired a $314 million loan portfolio, a total of six loans that include multifamily, student housing, self-storage and senior living properties. Each has a floating rate with three-to-five year terms, an inclusive extension option and an average balance of $50 million. Canyon Partners was also attracted to the geographic diversity of the portfolio, which includes California, Colorado, Rhode Island, Texas and Tennessee. The portfolio has a mix of both stabilized assets and assets in lease-up.

This acquisition increases the company’s unrealized real estate portfolio to $5.5 billion in project capitalizations.

Commercial mortgage acquisition opportunities have been rare in the last cycle. However, increasing loan delinquencies, particularly among retail and hotel assets, have reinvigorated the market. At the same time, deal volume has nearly stagnated. A September report from Real Capital Analytics found that loan volumes were down 68% year-over-year through August. Commercial mortgage rates have also remained stagnant at 3.8%, despite the 10-Year Treasury moving less than 1% since March. The decrease in loan volumes is likely due to an absence of buyer demand rather than a lack of lender appetite for deals; however, the spread between commercial mortgage rates and the 10-Year treasury signals caution from lenders as well.

Although the commercial loan market has been dry for the last several years, Canyon Partners has always been an opportunistic buyer of both performing and non-performing loans. The firm invests in both debt and equity, and has completed $2 billion of secondary note acquisitions.

Opportunistic investment has been an expectation since the start of the pandemic. Several investors have also announced plans to target distressed assets. In August, BH Properties launched a $200 million debtor-in-possession platform to acquire middle market distressed assets that are either in receivership or facing bankruptcy. Sabal Capital also announced plans to take advantage of distressed asset investment in September when the firm began to see a wave of bankruptcy filings hit the market.