Alternative Lenders Halt Redemptions, Signaling Mortgage Cracks

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(Bloomberg) -- Some of Canada’s biggest non-bank commercial mortgage lenders are freezing redemptions as investors try to flee the asset class.

Firms including Vancouver-based Trez Capital have gated open-ended funds indefinitely as the underlying assets can’t be sold fast enough to keep pace with sustained withdrawals.

While many managers of such funds have built up large cash buffers, a wider lack of liquidity in the asset management industry is emerging as a key risk for investors.

“With the turmoil in the market we had a certain number of retail clients that came through with a fair number of redemptions, particularly in the last week,” Daniel Marchand, senior vice-president who oversees capital raising for Trez, said from Toronto.

The firm manages C$3.8 billion ($2.7 billion) that’s roughly split between the U.S. and Canada. It didn’t say how long the freeze -- which impacts four funds managing approximately C$2.6 billion -- would last to “avoid building unrealistic expectations”.

“We saw that trend in the last week as other funds had been closing and gating,” Marchand said. “This action was somewhat proactive and preemptive, as there is the potential of this crisis becoming very problematic.”

Some firms such as Morrison Laurier Mortgage Corporation have gone further and also suspended dividends and new purchases, according to the people familiar with the matter.

“As a result of the implementation of social distancing to prevent the spread of the virus, and the mandating of the same by law, many of the projects in which Morrison Laurier is participating as lender have come to a complete halt while others may stop in the very near future,” president Adam Rose wrote in a message to investors seen by Bloomberg News.

Rose declined to comment.

©2020 Bloomberg L.P.

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