(Bloomberg)—DoubleLine Capital LP sees opportunity in the commercial real estate market despite mounting fears over the industry.
A darkening outlook for office properties, looming debt maturities and regional bank upheaval has spurred a dramatic repricing in commercial mortgage-backed securities. As concern continues to spread, that’s created an attractive entry point for higher quality credit, according to Morris Chen, who manages the DoubleLine Commercial Real Estate exchange-traded fund (ticker DCMB), which launched last week.
“It’s a perfect time, because with all this negative sentiment, you’re seeing a lot of unique opportunities,” DoubleLine portfolio manager Chen said in a phone interview. “By no means are we ignoring it, but there’s a lot of devil in the details as to what’s going on with specific properties. As an active manager, we’re able to pick and choose where we want, do what we like, what we don’t like.”
DCMB, which charges 39 basis points, invests in short duration debt that ranks highly in the capital structure, Chen said. While offices are risky, industrial and multi-family properties have held up well, he said, in addition to retail properties such as shopping centers.
Much of the current worry in the commercial real estate landscape center on the nearly $1.5 trillion worth of debt coming due for repayment before the end of 2025. Morgan Stanley estimates that office and retail property valuations could plunge as much as 40%, potentially fueling defaults.
While rising interest rates at the hands of an aggressive Federal Reserve and default fears have already crimped CMBS deals, those refinancing woes are mainly confined to more recently issued debt, Chen said.
“I’m most concerned about loans done in 2021. That’s largely because those borrowers borrowed at ultra-low rates,” he said. “If you borrowed in 2013 or 2014 or some of the vintages or years that have already had some seasoning and underlying performance growth over the years, there I think there’s a little bit less pressure.”
