Arbor Realty Trust – Slumlord Millionaires
New short report out by Viceroy: Arbor Realty Trust – Slumlord Millionaires
Everything that anyone who works closely to the value-add space knew about the quality of Arbor's loan book was just put on blast. Great reading.
Very interesting read as it kind of put the whole MF sector of CRE on blast as well. Pointing to the refinance Armageddon many already knew.
I'm watching closely to see if there is more involved in Arbor and their CLO's. Also didn't they do a bunch of Q-Deals with Freddie and retain the B piece?
Don't get me wrong you love to see it happen!
Thanks for sharing this information. It looks like CLOs are not marking their positions to reality or letting investors know that they are screwed across the board. Is anyone scruitinizing what they are doing? The oversight on these securitized debts are clearly flawed.
It is pretty troublsome. I don't know if they are in denial, hiding the problems, or just don't understand.
We should make it clear that it isn't just Arbor. The vast majority of these CLOs and similar lenders are not notifying the market of the major losses the debt investors are about to incur. I wouldn't own a AAA piece of one of these CLOs.
Someone posted something about the Arbor Buffalo office. Did something happen there?
That is what I'm hearing as well here and on twitter a bit ago
What's the word there? Would love to know... The ish could hit the fan very quickly for Arbor if they don't have a strong rebuttal ready.
Buzz is its something to do with the GSE/Meridian problems at the Arbor Buffalo office but that's all I've got for now
Every CLO has a trustee that goes through the portfolio from a ratings perspective. This is done quarterly - it is for the benefit of each tranche - I am sure positions have been marked and equity or "junior" tranches interest / cash flow has been diverted. Once some of these tests are failed, like an OC test or interest coverage test, then depending on who the agent is of that loan that is now in workout or "distressed" gets handled.
Article link:
https://viceroyresearch.org/2023/11/16/arbor-realty-trust-slumlord-mill…
Viceroy has issued an update regarding the latest data on Arbor's CLOs. Much to no one's surprise, delinquencies are through the roof recently:
https://viceroyresearch.org/2023/11/29/arbor-realty-trust-november-clo-…
Completely agree with this report other than arbor being the worst one out there.
I saw that fitch released a report saying that arbor is in good shape, which is completely false. Are the clo and cmbs implosions going to bring down the rating agencies? The ratings are completely worthless but so many investors believe them and it is going to cause massive losses.
The rating agencies have been the last to get the joke at every cycle in the last X decades. This time won't be different.
Arbor has real problems.
I've been reading through recent Fitch/Moody/DBRS Morningstar ratings updates & surveillance reports. On the several I've dug into, has been zero change in any of the bond ratings or the implied strength of the collateral. I told my wife the other day "it feels like that scene in The Big Short where Martin Baum is flabbergasted at what the S&P employee is saying". Would be comical if it wasn't so fucked up, but (unfortunately) history has a way of repeating itself.
Starting digging into their rating "methodologies" for CLO's and the fact they essentially say "our ratings assume diversified product base, geographical concentrations, and sponsorship" is ridiculous. There are MF1 pools for instance with nearly 20% Tides exposure alone, and when you add in Rise/ZMR/etc, some of these pools are ~50%+ shitty sunbelt Class B/C garden product with a small handful of sponsors.
Also for anyone who read the Viceroy report, they just issued an update based on November servicer reports. Delinquencies are ticking up very quickly, with one of Arbor's 2021-vintage pools at nearly 30%, up from ~18.5% in October. Most of these are 30 days delinquent, but the writing is on the wall for these 2024 maturities and cash flow continues to erode...
It is scary how similar everything is to the gfc right now. I am glad that it is tied more to commercial loans and the housing market stayed with long term fixed rate loans. Home prices will go down a lot but people’s mortgages are locked in at great rates, so that will insulate the pain. Air bnb, flippers, and people that need to relocate because of layoffs will have a hard time though. I feel bad for the people that get laid off and lose their house do to that. Seeing hard working people lose their houses is very sad.
Did we not learn anything last cycle
The rating agencies are truly AWFUL
The rating agencies and the institutions that rely on them learned nothing.
I don’t think I will ever trust a bond rating again. You have to dig into them to understand the risk. The current way things are rated should be shut down for the benefit of entire world. The SEC needs to really scrutinize what the rating agencies are doing.
So here’s the million dollar question- How do we short these CLOs?
Short the stocks
That’s complicated, as arbor has their own RE portfolio, as well as servicing revenue.
Its already one of the most shorted stocks out there. I think something like 30%+ of the shares are currently sold short.
Insiders are buying the stock, fyi
Arbor is cooked. Well over 100% LTV today.
Any valuation firm doing their mark to markets?
Looks like this is getting escalated... how much longer do we think the charade can go on for?
“We’re focused on investors’ losses and are investigating whether Arbor may have intentionally understated risks associated with its loan book and underwriting practices,” said Reed Kathrein, the Hagens Berman partner leading the investigation.
https://www.bakersfield.com/ap/news/arbor-realty-trust-abr-tanks-after-…
How is it difficult? They’re in the first loss position for hundreds of millions of dollars in the CLOs and their own book is in the same if not worse shape
Why is their stock up today? The company is worthless
Was wondering the same fucking thing. Stock spiked more than 5% today.
This is why I can't convince myself to buy puts...even though I'm firmly in the camp that ABR is likely toast as we progress through 2024/early 2025.
...Something something the market is irrational...
Guess y'all never heard of short squeezes before. If y'all don't know how to trade don't try to short anything, unless you want to experience what max pain feels like. It would be odd if the stock didn't pump after a report like this was released, especially with how much of the float is already short. 101
CRE Analyst posted the last two quarterly updates for GVA. It is pretty bleak and dramatically understated. This should hit the CLOs as multiple of their properties are going into foreclosure or will soon be in foreclosure.
https://www.linkedin.com/posts/cre-analyst_gva-investor-updates-activit…
It would be interesting to compare the other highly levered investment shops quarterly updates to see when and if they start admitting to investors that their properties are in trouble?
It would also be interesting to line those letters up to their major debt providers to see if they start admitting to the fact that they will be taking back properties and losing money.
If anyone can share info, it would be appreciated.
Who is running the interest test and asset test on these guys? What is the December data saying?
Why don’t the rating agencies dig into these CLOs? I saw the fitch rating report on one of the CLO and it was strait out of a seen from the big short. Don’t they have some responsibility to be truthful?
Which one?
Does anyone know how Arbor is managing replacement rate caps on their floating bridge loans? Are they requiring borrowers to start escrowing 6 months prior to rate cap expiry?
There is a new viceroy report up with the January numbers
https://viceroyresearch.org/wp-content/uploads/2024/01/Arbor-Jan-Update…
Arbor has decreased 20% in the last few weeks.
Has something come out that is causing it to drop?
The viceroy stuff has been out for a while, so I would be surprised if that is causing the drop.
Ummmm JPM Securities lowered their TP to $17 and I know a lot of earnings calls have happened. I think they recently had theirs and I'd assume its some fall out from that downgrade plus earnings call. Also if their dividend post date has passed, smaller px equities see some offloading after funds sell off once they are able to get the record date of the dividend.
They report earnings next Friday.
Powell was pretty cagey with when rate cuts were going to be a the market is thinking March isn't a sure thing anymore.
Even the WSJ started to cover this today
Arbor must be using accounting gymnastics/mods to avoid the Big D word- Delinquency.
It isn't logical that they lent at 85%+ LTV non-recourse, on Sunbelt 4 caps, to first-time syndicators, (occasionally without even requiring rate caps), and they have little to no delinquency. Especially at a time with a declining macro climate for many MF markets, there's no way I'm buying the story they are telling.
What is the TREPP data saying about these guys for February?
It will be interesting to see if they moved a bunch of the delinquent loans out of their CLOs, so people cannot track their bad loans.
Or maybe they are drawing down on the interest rate reserve. They dropped a $100m in their restricted cash in 2023. Is that them using that money to service the borrowers' debt?
I've heard of them reallocating capex draws to cover debt service as part of a modification. Viola! The loan is now current!
https://viceroyresearch.org/wp-content/uploads/2024/02/ABR-Baloney-with…
Sweet jesus this is bad. I thought my complaints in another thread were noteworthy....
Their stock has been pretty flat over the last 6 months...
I don't know how their stock hasn't suffered more. The analysts covering it clearly have no CRE knowledge and just buy whatever Ivan says on the earnings call.
I understand why the rating agencies haven't changed their ratings of CLO bonds- it's a racket. They would lose the business if they rated accurately, similar to the GFC. But the analysts...
I see the elevate dude on social media a lot.
Is there no way for his investors to understand what is happening to their money?
The Real Deal has been pretty active on reporting on the Viceroy Research reports. Why do they let off on this one?
It is pretty specific into the details of losses being hidden and equity being wiped out.
I saw an unconfirmed report that Arbor was using some of the shady appraisers that had been inflating values.
Does anyone know who they actually use to do their appraisal work?
Link?
What is the comment removed by mod team stuff?
What qualifies to get a comment removed and why are they doing it on the Arbor feed?
Will the person that had their content removed, rephrase and repost?
Is Arbor filing lawsuits against WSO?
Was my comment. Basically look at the other deal (not the one being foreclosed, but that sponsor’s “other” deal) referenced in the most recent viceroy report. Viceroy said it’s underwater, but being propped up by “a lender” and “a sponsor” as being cash cows essentially.
Oh ya - why would they delete it?
https://viceroyresearch.org/wp-content/uploads/2024/06/Arbor-Persona-No…
Do people have color or insight into the Meridian , BBG, Arbor relationship?
I’m curious as well. Viceroy is correct in the thesis on Arbor but they’re not well versed in our industry so I’m curious if anyone in the industry has more insight into this.
Saying that arbor is responsible for all appraisers from that one guy sounds like a huge stretch. I think arbor made some dumb lending decisions, but that accusation feels wrong
I am not sure what they did but I was also surprised with what Meridian did.
Arbor has clearly been trying to hide their losses and misleading investors.
Maybe that is all of it but I think whatever it is unravels soon.
Viceroy tweeted that Arbor just collapsed a CLO. I’m not so well versed with CLOs, but this seems that they called the CLO bonds. So essentially their took loans off their cheapest financing vehicle, the CLOs, and likely put those on a warehouse line, which would be more expensive. Would there be any reason to do that, unless they were forced to?
Perhaps the collateral was no longer meeting CLO DSCR/LTV requirements?
Correct on all fronts.
This will put a lot of extra stress on their balance sheet.
Their warehouse lines should default them and takeover before Arbor does more damage to the collateral.
So from the Meridian fallout, Lenders found in noncompliance are being forced to buy the deals back from Fannie, and, on the Freddie, side, buy them out of the K-Deals, or PCs. Then the lender will be allowed to force a foreclosure on the properties, but that takes time and I assume no lender other than maybe Capital One and JPM have cash they can float over from the Retail side. I wonder if this is the beginning of the loans they have to buy out of the market.
Above my pay grade but heard that was what was happening to the lenders.
As far as I can tell the collapse is a bit more about capital efficiency and than them moving loans onto WH lines. Looks like between arbors 2021-FL4 CLO, 2022-FL1 and 2022-FL2 CLOs they had ~619mm in cash but the reinvestment windows for those structures were about to close in the coming months. Given their new origination volume is next to nothing right now it just seems to me they were in a “use it or lose” sitch. Calling 2021-FL2 gave them roughly the right amount of loans they could purchase into those other 3 trusts allowing them to extend out those trusts longer instead of being forced to pay them down with the excess cash. Doubt much ends up on warehouse lines. Not sure this event is that much of a negative or positive tbh and if anything extends out their liquidity a bit longer. I could be wrong though.
I’m honestly surprised they haven’t had to cut their dividend yet.
They are just trying to hide their problems.
If they were interested in the shareholders, they would have cut their dividend 2 years ago.
If you dig into their 10-K, you can see the dividend is partially being supported by new common share issuance. They buy back shares and then issue ever more shares. So it seems like they can claim they're doing share buybacks, where in reality in net they're a net issuer. Last year they repurchased 3.5 million shares and then turned around and issued 13.1 million new shares.
Interesting short defense by Mark Meldrum for anyone interested:
That is video is 4 hours long!
What is interesting about it?
Any CLO experts here? If Arbor allows a borrower to stop escrowing for insurance or tax reserves, will the reported DSCR rise as there is more cash flow?
I know this is one of the first mods they often agree to.
Escrow isn’t part of a dscr calculation. However both insurance and taxes fit into the NOI calculation, which is the numerator in the dscr calculation.
Got it. Though loans can artificially be kept current by letting borrowers stop escrowing for taxes, insurance, R&M, etc.
But the day of reckoning will come when the lender has to advance the tax or insurance payments.
Did elevate out of DFW actually lose a property to foreclosure or was it just threatened?
I saw the short sale article. Can anyone confirm that the agencies are actually investigating Arbor or is it just some of their relationships that are being investigated?
I don’t know the answer, but Ivan said something along the lines of “we can’t speak to that” when asked. Regardless, you can look at CLO data and see that many properties are not covering their debt service, so essentially Arbor is covering their own debt service.
https://cred-iq.com/blog/2024/06/21/loan-modifications-swell-195-in-12-…
Bloomberg says their is a federal prosecutor probe and fbi investigation into Arbor. I wonder how much exposure they have on their appraisals. If Fannie/Freddie cut them off, that will be a big hit for them.
https://therealdeal.com/national/2024/07/12/arbor-realty-trust-under-in…
I came back to this thread after seeing the news earlier today. Anyone have any other insight?
I had bought ABR stock early on in the pandemic for the dividend, but sold throughout this year partly after reading the above. I hope the investigation is a nothingburger, but i'm also glad i didn't keep holding after a day like today.
Anyone know who Arbor's repo counterparties are?
A distressed syndicated property that Arbor gave a 44M loan on hasn't paid it's property tax bill. Does anyone know how all these mods work? Is there money going into tax escrows every month? There must not be, otherwise this bill would have been paid already. (It was a 279k bill, but the longer they take to pay, the more it goes up.)
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