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Hedge funds investing in shopping malls and hotels

We are seeing a number of hedge funds investing in ventures such as hotels and malls. This is all in the backdrop of in excess of $1 trillion in commercial real estate debt being originated. Many borrowers require more funds than banks are willing to loan.

There is concern about the number of investors entering into the market. "The wave of loans coming due is going to create a bottleneck," stated one investor. Yet funds are hoping that the purchasing of corporate debt and mortgage-backed securities will draw yields as high as 15 percent.

Firms have been willing to provide loans that will be repaid after the commercial mortgage in the event that there is a default. As these loans put the lender at higher risk, the lender in return hopes to benefit from higher yields.

Investments in real estate have shown gains during this past year. Many of these firms have invested a substantial percentage of their business in commercial real estate, and transactions have been in the billions of dollars.

One investment firm is searching for properties in major metropolitan areas like San Francisco which has an ample supply of global capital. Its first deal is a loan for a California shopping mall which will in turn finance an acquisition. This is just one of a series of investments in hopes to make. The firm also plans on purchasing shorter-term debt as well.

One debt analyst states that the purchase of loans is more complex than the buying and selling of securities. Real estate attorneys can prove beneficial to those engaged in these transactions as representation is often needed in the acquisition and development portions of these matters.

Source: Bloomberg, "Hedge Funds Preparing for $1 Trillion Property Bill: Mortgages," Sarah Mulholland, Feb. 6, 2014

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