Mortgage fund in Canada halts payments due to cash crunch

(Bloomberg) – Canadian real estate lender Romspen Investment Corp. halted redemptions of its biggest fund after a number of borrowers stopped making payments.

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The Toronto-based company will ‘temporarily defer payment’ of redemptions until it has more clarity on when borrowers will repay the loans and the fund can obtain cash from the sale of assets, a letter says to investors dated November 8. “Loan repayment activity remains suppressed.

The move underscores growing stress in the country’s real estate market as a sharp rise in interest rates alters the economics of commercial projects and disrupts the housing market.

The company, which is backed by New York-based TIG Advisors, is an established specialty manager of private mortgage funds, providing pre-development, construction and other loans for commercial and residential projects. It is one of the largest private players in this sector in Canada.

The Romspen Mortgage Investment Fund had C$2.8 billion ($2.1 billion) invested in 134 mortgages as of the end of June, split roughly evenly between Canadian and U.S. projects. Management is now working to accelerate the sale of certain assets to free up cash.

“Rest assured that we are working diligently to expedite a number of these portfolio transactions and remain confident in the underlying value of the fund’s assets,” Romspen said in the letter, which was signed by eight directors.

“In many cases, however, such transactions involve the coordination of the interests of a number of independent third parties, which are also affected by current market uncertainties. We are confident that, given time, these transactions will be completed. »

Read more: Private lender cuts mortgage business in Canada as defaults rise

Private loan funds have grown in popularity among yield-hungry investors in the era of lower interest rates. But mortgage financing vehicles had a tough year with rising rates. Rising borrowing costs are also hurting developers as they seek capital to build new projects or refinance existing ones.

As a result, Romspen has reduced its dealings in Canada, managing partner Derek Jenkin told Bloomberg last month.

“Difficult phase”

To preserve liquidity, the firm has created a “trickle pool” for investors who wish to withdraw their money as assets are sold. But that hasn’t dampened redemption requests, according to the letter, which says the company may take further action if conditions worsen.

Romspen told investors it has consistently outperformed other asset classes this year, with a one-year return of 8.2% as of June 30, according to its website. “We are confident that we will get through this difficult phase and achieve reasonable long-term results for investors, just as we have done in times of past adversity in the more than 50-year history. of Romspen,” the letter read.

When developers can’t catch up on payments, Romspen shuts down and deploys teams to continue working on projects before selling them. Because it lends at 65% LTV, “the market would have to move about 30% for us to see a material loss on our book,” Jenkin said last month.

Romspen had paid more than C$700 million in buyouts over the past 18 months.

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