One of Canada’s biggest private mortgage lenders recently halted redemptions from its flagship real estate fund, signaling what could be a growing drawback sentiment to pull out investment from private lending.
Romspen Investment informed investors looking to cash out from its Mortgage Investment Fund that they may have to wait, citing loan repayment delays and the need to protect against loan losses.
Investor funds are used to provide mortgages to higher-risk commercial developers who do not typically qualify for bank loans. However, rising mortgage rates have increased the cost and availability of refinancing in commercial real estate markets in the United States and Canada.
Over the last 18 months, more than $700 million has been returned to Romspen’s investors. The current redemption queue values approximately another $325 million – nearly 12% of the fund’s assets.
Instead, the company will establish a separate pool for unitholders who wish to cash out, and will allocate a proportionate percentage of assets to that fund. Redeeming investors will receive payments as cash becomes available through loan repayments or asset sales.
“We believe that this option provides those who still want to redeem with a certain level of liquidity over time, while giving the fund some additional capacity to carry out its objectives for the benefit of remaining unitholders,” Romspen said in a statement.
However, Romspen–with US$2.8-billion asset size in tow–halting redemptions speak to a much larger market movement, given its vastness. As central bankers raised interest rates in an effort to rein in inflation, real estate activity fell off in recent months. In turn, rising financing costs have had an impact on real estate values as well as transaction and loan activity, most obviously in the residential sector.
“We are seeing similar hesitancy in the industrial and warehouse sector, which had been, until recently, an oasis of relative strength,” Romspen said in its Q2 report. “The commercial real estate market presents a distinctly different picture than even six months ago.”
Information for this briefing was found via The Globe and Mail and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.