As a second summer of discontent for the capital markets draws to a close, finance experts are eyeing a new category of player that is helping fill the void. \u201cThe hedge funds are here to stay for the foreseeable future until the capital markets fix themselves,\u201d declared Cliff Mendelson (pictured), a senior managing director for Transwestern\u2019s structured finance group. Strictly speaking, of course, hedge funds are hardly newcomers to commercial real estate; the real novelty is their higher profile. It is no secret that hedge funds have taken a stepped-up role in providing mezzanine debt, preferred equity, and other products to bridge the gap between senior debt and sponsor equity. For example, Centro’s CEO Glenn Rufrano recently noted to Australian news sources that his firm has been talking with such funds.Fund managers are perpetually searching for the highest possible return at the lowest risk. The potential for 12 percent to 15 percent returns that has emerged in the past year accounts for that appeal, Mendelson explained. Mendelson reported that the funds have provided a total of $100 million for three major transactions totaling $500 million in value that he has arranged in the past five months. \u201cWithout hedge funds,\u201d he asserted, \u201creal estate acquisition today would come to a complete, grinding halt.\u201d An intriguing issue to watch in the months to come will be the role of hedge funds in refinancing loans originated several years ago before the credit squeeze, noted Fred Leffel, senior vice president for Savills. \u201cThat wave of transactions hasn\u2019t really hit yet,\u201d Leffel said. Nevertheless, he added, \u201cIt\u2019s coming and we\u2019ll see more of it.\u201d Even owners of stabilized, well-tenanted properties could find themselves in a tight spot. A borrower today might be able to find senior financing for only 60 percent of an asset\u2019s value, compared to 70 percent a few years ago. And if that asset\u2019s value has also slipped, the gap for the borrower to fill is that much bigger, Leffel explained. Enter hedge funds, which could step up their activity–albeit at a premium rate. Another potential target for hedge funds is the CMBS market. Given the vast backlog of paper that originators want to securitize and sell, it is doubtful that hedge funds alone can buy enough paper to restart the market. Still, the prospect for double-digit returns on investment-grade tranches could prove appealing to hedge funds. CMBS paper could also have the advantage of being relatively low maintenance compared to other investments. \u201cOnce you buy that paper, you don\u2019t have to do very much, as opposed to when you make a mezzanine loan,\u201d he pointed out. \u201cThe staffing is a lot less.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"
As a second summer of discontent for the capital markets draws to a close, finance experts are eyeing a new category of player that is helping fill the void. \u201cThe hedge funds are here to stay for the foreseeable future until the capital markets fix themselves,\u201d declared Cliff Mendelson (pictured), a senior managing director for…<\/p>\n","protected":false},"author":1314,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[21825],"tags":[],"class_list":["post-1003844566","post","type-post","status-publish","format-standard","hentry","category-finance"],"acf":[],"yoast_head":"\n