Arena eyes JVs to acquire non-performing mortgages

Arena Investors is looking to form joint ventures to acquire non-performing or discounted commercial mortgages.

The investment adviser believes that distress will rise as pandemic-related moratoria on foreclosures and evictions end, Donald Moses, managing director and chairman, told Real Estate Capital USA.

“Lenders had forbearances put in place to avoid dealing with some corrections in the market – areas like retail, hospitality, urban office – that had been negatively impacted by covid,” Moses said. “Once a lot of those legal protections start to go away, which is happening now, there will be a lot of opportunities to acquire investments from banks and debt funds that are not as well-equipped to handle a non-performing loan or workout as we are. We don’t mind rolling up our sleeves and doing the hard work in challenging situations.”

Arena buys non-performing loans of between $5 million and $20 million. Many of them have been in New York City but the firm will also buy loans secured by properties in other metros, including primary and secondary markets.

“We don’t have a specific allocation to the note-buying strategy, but real estate secured loans are an integral part of our strategy and we will continue to opportunistically invest in real estate loans that we believe have a good risk-adjusted return,” Moses said

The firm, with offices in New York, San Francisco, Jacksonville, Dublin and London, has invested via a number of joint ventures in the past. It believes this type of partnership gives greater access to opportunities in troubled sectors impacted by the pandemic, such as retail, hospitality and urban office.

“[We typically] team up with smaller private lenders and investors that have good access to investment opportunities but not as much capital, and we structure joint venture investments in mortgages and loans similar to what other investment firms do with equity investments,” Moses said. “Once covid restrictions ease, many lenders are going to find themselves with some problem loans they don’t want to deal with that we will be able to acquire at a reasonable price.”

Based in San Francisco, Moses has filled senior positions in real estate finance at firms that include Bank of America, Wells Fargo, Fortress Investment Group and Capital Source Finance over the past 25 years. His experience also includes structured debt originations and managed loan workouts.

Stable income account

The firm, which also invests in corporate private credit, structured finance and corporate securities, recently launched a commercial mortgage stable income account. The account will be an alternative for borrowers who are seeking financing for solid properties with in-place cashflow and investors who want to access stable returns.

For the stable income account, Arena is focused on loans between $5 million and $30 million in all markets in the US.

Similar to its high-yield strategy, the firm will invest in primary, secondary and even some tertiary markets for certain product types like multifamily.

“This program is focused on income-generating assets like multifamily and industrial, and even some product types that have been disrupted more by covid including office, hospitality and occasionally retail,” Moses said

Arena will also lend on some less traditional product types such as self-storage, assisted living and manufactured housing.

“We think there is a large opportunity to be able to originate deals that we’re not acquiring to securitize that may have a more highly structured element or may marginally be at a higher leveraged point than what typical securitized lenders will underwrite – and we think there’s a great opportunity for us to invest and originate loans in that space,” Moses added.

For the Stable Income Account, the firm will lend up to 80 percent on most asset types and up to 85 percent on multifamily.

The firm is targeting between $100 million and $150 million in new loan originations to year end. In 2022, it aims to originate over $200 million in new loans.