Two investors known for seizing on distressed opportunities in previous real estate crashes are teaming up to raise $1 billion for extending loans to office owners in
Reven Office REIT, a mortgage real estate investment trust, is seeking $100 million from a lead investor and $900 million through a "blind pool" initial public offering, according to a presentation shared with Bloomberg. Chad Carpenter will be chief executive officer of the REIT, while Ethan Penner will be chairman.
Office landlords have come under pressure as borrowing costs rise and prices plunge. Credit has also dried up with many banks and nonbank lenders cutting back on extending new loans to offices because of rising vacancies and uncertain demand in the post-pandemic era of hybrid work.
"We see today tremendous dislocation in the commercial real estate world, most primarily in office," Penner, who pioneered the use of commercial mortgage-backed securities, said in an interview. "Whatever lenders are out there won't touch office with a 10-foot pole."
Carpenter, 58, has three decades of real estate investing experience and was previously chairman and CEO of Reven Housing REIT Inc., which he sold in 2019 for about $57 million. Penner, 62, is known for his role in building up the CMBS market in the 1990s while working at Nomura Securities after bank lending dried up following the savings and loan crisis.
Office landlords face more than $200 billion in maturing loans through 2025, according to the Mortgage Bankers Association. The challenges of rising rates, record-high vacancies and slumping prices have caused many owners to fall behind on debt, with the delinquency rate for loans backed by offices jumping to 6.5% at the end of December, up from 5.1% three months earlier, the MBA
Carpenter, who founded a single-family rental housing REIT after the 2008 financial crisis, said the new lending platform will seek to finance about $2 billion in loans, mostly fixed-rate senior debt with an average 50% loan-to-value ratio on buildings that are selling at steep discounts from pre-pandemic levels.
A blind pool IPO raises capital before making investments, similar to the process used by nontraded funds, while giving investors a more liquid way to bet on the market, he said.
Risky times
The pair is aiming to offer its first loans within as little as three months. Reven will look for properties that can operate profitably despite higher interest rates, Carpenter said. While rates may have reached a cyclical peak, property values have a long way to fall as leases expire and landlords need new financing, he said.
"I don't think we're anywhere close to the bottom," Carpenter said. "We want experienced borrowers. This is not a time for rookies. There's a lot of risk out there."
While office demand is likely to soften for years as owners deal with lease expirations, there will continue to be a need for desk space, providing opportunities for selective investors, Penner said.
"We're running into burning buildings when everyone's running out of them," he said.
