Property’s Big Short Isn’t Going to Plan


Arbor Realty Trust Resists Short Sellers

Short sellers betting against Arbor Realty Trust, a major real estate lender, are finding their trade more challenging than anticipated. Arbor’s aggressive lending during the pandemic, particularly to multifamily property investors, seemed ripe for trouble when interest rates began to climb. Many landlords who bought properties with short-term, floating-rate debt saw their borrowing costs soar from around 3-4% to 8-9%, leading to significant financial strain and property devaluation.

Despite this, Arbor has adeptly managed its troubled loans, employing strategies like allowing borrowers to defer interest payments and requiring additional cash injections to mitigate risks. These moves have reduced the delinquency rate on Arbor’s securitized loans from 9% in January to 3.8%, buying time against the backdrop of delayed Federal Reserve interest rate cuts. Consequently, short sellers are incurring substantial costs to maintain their positions, including high borrowing fees and covering Arbor’s hefty dividend, which has yielded over 12%. As a result, while Arbor’s stock has only dipped by about 10% this year, it has still outperformed other real estate lending peers, frustrating short sellers who underestimated the lender’s resilience.

Our take (from the Straight to Smart newsletter):

Fed Isn’t Coming to the Rescue

Article Excerpt:

It looked like an ideal way to bet on the downfall of gung-ho property investors who poured billions of dollars into overpriced buildings during the pandemic.

Instead, short sellers in real-estate lender Arbor Realty Trust ABR appear stuck in a particularly expensive trade, having underestimated Arbor’s determination to “extend and pretend” its problem loans.

Click to read original WSJ article (subscription may be required):
Property’s Big Short Isn’t Going to Plan

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