Dornin Investment Group, which has acquired a non-performing loan secured by a prominent Atlanta office property, sees the deal as part of a short-term opportunity to acquire NPLs in the US market on high-quality assets at or near par in cases where a borrower needs more time to refinance debt, writes William Johnson.
The California-based real estate asset manager in September snagged the $185.6 million NPL on Campanile Plaza, a Class A office tower in Atlanta’s midtown submarket that was once the headquarters for telecom company Bell South.
The borrower is planning to expand the 21-storey, circa 500,000 square foot asset by around 125,000 square feet, Eric Entringer, vice-president of capital markets and investor relations at Dornin, tells Real Estate Capital USA. The company acquired the loan at par.
The loan was originated by a debt fund and went into non-monetary default when the borrower needed more money to complete the renovation and expansion. Based on the asset’s quality and location, the firm is confident the borrower will be able to obtain a new loan quickly.
“We believe we will have the ability to get paid off in a relatively reasonable time frame,” Entringer says. “Atlanta is a strong market and with the quality of the collateral and the reasonable coupon on the note, we figured the borrower would figure out a refinancing and pay us off. We would make a little bit of money and they would be able to move on with their business plan.”
Dornin, which recently acquired a $150 million note secured by 18 properties in Southern California, is talks to identify similar distressed deals. The firm has a goal of doing one to two of these each month, Entringer says.
Dornin sees an opportunity in buying mostly sound NPLs at par or slightly below par from lenders that are eager to rid any non-performing debt from their balance sheets, regardless of the quality of the collateral or the borrower’s potential to refinance. Typically a value-add investment, NPLs opportunities are increasing as a result of the covid-19 pandemic and present better value right now, Entringer says. “We’ve been buying these notes where they are in either monetary or non-monetary default. They are well-collateralized, the LTVs are sub-65 percent. So, it is good real estate.”
One potential drawback is the relative difficulty of finding such deals. “They are not widely marketed so we are aggressively talking to the funds and the banks, telling them what we are doing,” Entringer says.
Dornin is prepared to deploy what Entringer characterizes as significant capital for non- and sub-performing loans. It is underwriting a smaller loan of around $20 million in unpaid principal balance and is looking at other situations nationally.
“It’s a onesie-twosie strategy of talking to the debt funds and banks to find well-collateralized loans that are sub- or non-performing. If we get paid off quickly, we are able to recycle the capital quickly,” Entringer says. “Overall, each lender only has a few notes that are well collateralized but not performing as agreed and we want the debt funds and banks to [know] our strategy and that we will buy at par if it’s well-collateralized and has the right kickers.”
JLL arranged the Atlanta deal and also worked with Dornin on its most recent NPL acquisition in Southern California. “The first note we bought was something we tracked for a long time,” Entringer says. The firm’s chief executive, Chris Dornin, knew the borrower, the collateral and the brokers involved, all factors that facilitated the deal.
The Southern California loan has already been paid and Entringer believes this speed of repayment will be the case with the NPLs it acquires. By buying an NPL, Dornin believes it can provide the borrower with flexibility to refinance debt; help a bank or debt fund offload a non-performing asset; and obtain interest and principal payments and fees on a loan it believes will be repaid in weeks or months.