Dornin Investment Group, which has acquired a non-performing loan secured by a prominent Atlanta office property, sees the deal as part of a short-term opportunity to acquire NPLs in the US market on high-quality assets at or near par in situations where a borrower needs more time to refinance debt.
The California-based real estate asset manager snagged the $185.6 million NPL on Campanile Plaza, a Class A office tower in Atlanta’s Midtown sub-market that was once the corporate headquarters for telecommunications company Bell South. The borrower is planning to expand the roughly 21-storey, 500,000 square foot asset by around 125,000 square feet, Eric Entringer, vice-president of capital markets and investor relations at Dornin, told Real Estate Capital. The company acquired the loan at par.
The loan was originated by a debt fund and went into non-monetary default when the borrower needed more money to complete the renovation and expansion. Based on the asset’s quality and location, which Entringer described as in the centre of its sub-market, the firm is confident that the borrower will be able to obtain a new loan reasonably quickly.
“We believe we will have the ability to get paid off in a relatively reasonable time frame,” Entringer said. “Atlanta is a strong market and with the quality of the collateral and the reasonable coupon on the note, we figured the borrower would figure out a refinancing and pay us off. We would make a little bit of money and they would be able to move on with their business plan.”
Seeking similar deals
Dornin, which earlier this month acquired a $150 million note secured by 18 properties in southern California, is speaking with brokers and other intermediaries and interested parties that could help it identify similar distressed deals. The firm has a goal of undertaking one to two of these transactions each month, Entringer said.
The firm sees an opportunity in buying mostly sound NPLs at or slightly below par from lenders that are eager to rid any non-performing debt from their balance sheets, regardless of the quality of the collateral or the borrower’s potential to refinance. Typically a value-add investor, NPL opportunities are rising as a result of the covid-19 pandemic and present better value right now, he said.
“We’ve been buying these notes where they are in either monetary or non-monetary default. They are well-collateralised, the LTVs are sub-65 percent. So, it is good real estate,” Entringer said.
One potential drawback is the relative difficulty of finding such deals. “They are not widely marketed so we are aggressively talking to the funds and the banks, telling them what we are doing,” he said.
JLL arranged the Atlanta deal and also worked with Dornin on its most recent NPL acquisition in Southern California. “The first note we bought was something we tracked for a long time,” Entringer said. The firm’s chief executive, Chris Dornin, knew the borrower, the collateral and the brokers involved, all factors that facilitated the deal.
The Southern California loan has already been paid down and Entringer believes that this speed of repayment will be the case with the NPLs it acquires. By buying the NPL, Dornin believes it can accomplish three things – provide the borrower with more flexibility to refinance debt, help a bank or debt fund to offload a non-performing asset and obtain any interest and principal payments and fees on a loan that it believes will be paid off in weeks or months.
Dornin is prepared to deploy what Entringer characterised as significant capital for non- and sub-performing loans. It is underwriting a smaller loan of around $20 million in unpaid principal balance and is looking at other situations nationally.
“It is a ‘onesie-twosie’ strategy of talking to the debt funds and banks to find well collateralised loans that are sub or non-performing. If we get paid off quickly, we are able to recycle the capital quickly,” Entringer said. “Overall, each lender only has a few notes that are well collateralised but not performing as agreed and we want the debt funds and banks to [know] our strategy and that we will buy at par if it’s well-collateralised and has the right kickers.”
Dornin typically invests via joint ventures or syndicates investments to a pool of high-net-worth investors.