Canadian real estate firm Romspen Investment Corp. has halted the redemption of its largest fund as many borrowers have stopped paying.
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 $2.8 billion in 134 mortgages at the end of June, split 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.”
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.
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 has outperformed other asset classes again this year, posting a one-year return of 8.2% as of June 30, according to Romspen’s website. We are confident that we will weather this difficult phase, as we have experienced previous adverse periods in our more than 50-year history, delivering 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. Lending at 65% loan-to-value, “the market would need to move about 30% to see a significant loss on our books,” Jenkin said last month.
Romspen has paid out more than $700 million in redemptions over the past 18 months.