Amid Market Dislocation BH Properties Revives Distressed Loan Strategy
The market dislocation has created opportunity to acquire distressed loans, particularly for assets suffering from severe rent loss.
“We have successfully worked in this space in previous cycles where we were able to acquire both debt and distressed portfolios,” Jim Brooks, president of BH Properties, tells GlobeSt.com. “Prior to COVID, we had witnessed changes in the retailing landscape, which had been showing signs of stress as shopping habits had been impacted by on-line shopping creating a surplus of retail space creating opportunities for acquiring and re-purposing retail real estate. The impact of COVID has accelerated that stress with many landlords and owners looking to raise cash through a sale of their loans or real estate given the extra burden of many retailers failing to pay rent.”
The company plans to source deals from lenders overexposed to the retail market, which will likely be looking to sell off the debt. The debt markets have also paused, and borrowers will also have trouble securing debt, both on a refinancing and new financing deals. “The opportunity to provide capital on a risk adjusted basis looks attractive,” says Brooks. “As a result we have and continue to pursue sale / lease back transactions, secured note acquisitions, stalking horse bids and DIP financing.”
To lead this strategy, BH Properties has welcomed Rowan Sbaiti as senior managing director of acquisitions. Sbaiti was originally hired to oversee ground lease acquisition, but the firm’s strategy has quickly shifted in response to the pandemic. “We made a decision to add further acquisition resource that was complimentary to our current team, initially driven by our expanded ground lease program along with identifying potential distressed debt opportunities beginning to appear in the retail sector,” adds Brooks. “In early 2020, we finalized a deal with Rowan to join us to lead these efforts. Prior to Rowan starting with us in April and following the COVID-19 outbreak, that role shifted to a focused distressed debt role in-line with Rowan’s background and experience.”
BH Properties has ample liquidity and no backing investors, giving the firm more flexibility to respond to the current market. As a result, it has already been an active buyer. Beyond distressed loans, it is also focused on industrial assets, which it believes will be a winner following the pandemic. “We have always been more focused ultimately on basis,” says Brooks. “The winners in the future will continue to be industrial space, both in-fill, distribution and manufacturing space as we seen how the dependence on foreign manufacturing has disrupted supply chains. Enhancing supply chains of delivering goods to consumers will be one of the many lessons learned along with the strength of the housing market, where we beginning to see subtle signs of builders back in the market. Unfortunately, those property owners solely dependent on retail income face an uncertain future.”
BH Properties has allocated $150 million to meet market opportunities, and is evaluating all assets.