Wall Street Targets CMBS Backed by Retailers, Shopping Malls

Bloomberg reports that hedge funds and investors are ramping up their short positions on CMBS bonds backed by loans taken out on struggling shopping mall complexes. It notes that while the scope of the potential credit crisis is much smaller than that seen in the residential housing sector a decade ago, many bearish investors are convinced the demise of the retail shopping mall will lead to large losses brought on by defaults on these loans.

However, others question such trades. "The short feels crowded to us," said Matthew Weinstein, principal at Axonic Capital, a hedge fund that specializes in structured products. "If these defaults start happening soon, the short will work, but if the defaults do not occur quickly, the first guy out could drive the market meaningfully higher." Nevertheless, the payoff could be substantial. "When a mall starts to falter, the end result is typically binary in nature," said Matt Tortorello, a senior analyst at Kroll Bond Rating Agency. "It's either the mall is going to survive or it's going take a substantial loss."

If you are interested in joining SFIG's CMBS Committee, please contact Dallin.Merrill@sfindustry.org.

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