Canadian Mortgage Fund Suspends Payments Amid Liquidity Crisis

(Bloomberg) — Canadian real estate firm Romspen Investment has suspended the redemption of its largest fund after many borrowers stopped paying.

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According to an investor letter dated Nov. 8, the Toronto-based company will wait until there is more clarity on when borrowers will repay loans and the fund will be able to obtain cash from asset sales. Temporarily defer payments. ”

The move highlights growing stress in the domestic real estate market as a sharp rise in interest rates transforms the economics of commercial projects and disrupts the housing market.

Backed by New York-based TIG Advisors, the firm is an established professional manager of private mortgage funds, providing predevelopment, construction and other loans for commercial and residential projects. It is one of Canada’s largest private players in its business.

The Romspen Mortgage Investment Fund has invested C$2.8 billion ($2.1 billion) in 134 mortgages at the end of June, split roughly evenly between projects in Canada and the United States. Managers are now working to accelerate the sale of some assets to free up cash.

In a letter signed by the eight trustees, Romspen said, “We are working diligently to expedite many of these portfolio transactions and remain confident in the underlying value of the fund’s assets. Please be sure that you are

“However, often such transactions involve reconciling the interests of a number of independent third parties who are also subject to current market uncertainty.”

READ MORE: Private lenders cut Canadian mortgage business as defaults rise

Private lending funds became popular among yield-hungry investors during an era of lowest interest rates. But mortgage finance vehicles had a difficult year as interest rates rose. Rising borrowing costs are also hitting developers as they seek funding to build new projects or refinance existing ones.

As a result, Romspen has scaled back its Canadian deal, managing partner Derek Jenkin told Bloomberg last month.

“Challenge Phase”

To maintain liquidity, the company has created a “run-off pool” for investors who want to make money when their assets are sold. But that didn’t dampen reimbursement demands, according to the letter, which said the company could take further action if the situation worsened.

Romspen told investors it is still outperforming other asset classes this year, returning 8.2% for the full year as of June 30, according to Romspen’s website. We are confident that we will navigate through this difficult phase, as we have done in previous periods of adversity in our history, and deliver reasonable long-term results for our investors,” the letter said.

If the developer doesn’t keep up with the payments, Romspen will foreclose and deploy a team to continue working on the project before selling it. Because it lends at 65% of its loan value, “there is no material loss on the books unless the market moves about 30%,” Jenkin said last month.

Romspen has paid out more than C$700 million in redemptions over the past 18 months.

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