Look Who’s Investing In CRE’s Capital Markets

NEW YORK CITY–Two companies in separate transactions have signalled their intent to expand and diversify their holdings in the commercial real estate capital market. In one transaction Five Oaks Investment Corp. has acquired all of the equity interests of Hunt CMT Equity LLC from Hunt Mortgage Group for $68 million with the intent of increasing its investments in the CRE mortgage space. In the other transaction, Morgan Properties, which typically invests in multifamily properties, has acquired a B-Piece from Freddie Mac through its K-Series program. It too plans to increase its exposure to this asset class. Meanwhile KKR Real Estate Finance Trust recently sold its CMBS B-Piece portfolio for net proceeds of $112.7 million — a significant chunk of its B-Piece portfolio.

Five Oaks Investment Corp.

The assets Five Oaks Investment acquired include junior retained notes and preferred shares of a commercial real estate collateralized loan obligation, a licensed commercial mortgage lender and eight (8) loan participations.

The CLO assets include performing transitional floating rate commercial mortgage loans with a portfolio balance of $346.3 million, collateralized by multifamily, retail, office, mixed-use, industrial and student housing properties. The securitization pool is financed by $290.7 million of investment-grade notes. As of March 31, 2018, the CLO had $2.9 million of cash available for reinvestment.

“This transaction is the first of what we anticipate to be a series of similar ongoing investments by the company in the commercial mortgage space,” said Michael Larsen, president of Five Oaks, in a prepared statement. “As this transaction shows, Hunt provides the company with access to attractive investments and financing that well position the company as it focuses on its new strategy.”

Morgan Properties

Morgan Properties, a real estate investment and management company that has quietly assembled a significant multifamily portfolio in the Mid-Atlantic, just acquired a B-Piece from Freddie Mac through its K-Series Program. This is the second recent K-Series Deal involving Morgan Properties, following its K-MP1 acquisition in September 2017.

The B-Piece that Morgan Properties acquired had a face amount of approximately $97 million. K-75, which is represented by multifamily properties located across 23 states, had an LTV of 67.7% at closing, which is anticipated to amortize down to 62.1 percent by maturity. It also had a weighted average net cash flow debt service coverage ratio of 1.52x.

The investment was a logical step for Morgan Properties, Jason Morgan, SVP of Acquisitions and Investment Management at Morgan Properties, tells GlobeSt.com. “It was a way for us to continue to diversify in the capital stack, bring that owner’s mentality to the multifamily credit investment market and leverage off of our core competence.”

Morgan says the company will continue to invest in the Freddie Mac series. “We are actively growing our debt platform.”

KKR Real Estate Finance Trust

Also in April KKR Real Estate Finance Trust sold its CMBS B-Piece portfolio for $112.7 million, representing the exit from four of the company’s five direct CMBS B-Piece investments and accounting for 87% of the company’s total direct CMBS B-Piece portfolio’s market value as of year-end 2017. The investments were made between the second quarter of 2015 and the first quarter of 2016.

The company plans to redeploy the proceeds from the sale into its target assets, primarily floating-rate senior loans.

KREF continues to hold some $14 million of direct investments in CMBS B-Pieces and has a $40 million commitment to invest in an aggregator vehicle alongside KKR Real Estate Credit Opportunity Partners L.P.

Chris Lee and Matt Salem, co-CEOs and co-presidents of KREF, say that the company will continue to opportunistically invest in CMBS and real estate related securities “when the risk adjusted return and relative value look favorable.”