Real estate debt hedge funds

TCI is a lender on RE like a bank. Says it right there in that first paragraph. Nothing exotic.

Plenty of HFs invest in RE. REITs and RE-related corporates, structured products (cmbs, rmbs, clo), trade claims, illiquid investments across the stack on RE assets (equity, pref, mezz, jr/sr loans) and plenty of other wrinkles. Usually hfs are more opportunistic about it and use their 30k ft view and diverse toolkit (e.g., creative structures) as their edge. Usually not sticks and bricks guys unless investing out of separate RE pool of capital w specific RE-only team

Sure 30k ft view: most RE investors are specialists in something, like geography, property type, cap structure slice (debt or equity), business plan (core vs opportunistic) and often can only invest in their specific sandbox. There are also groups that specialize in structured products, public REIT securities, etc. The more specialized you get, the smarter you can be in your space, but you’ve got a narrower field of vision (“on the ground” or “1k ft view” vs a “30k ft view” to keep the metaphor consistent). So for instance, a west coast multifamily PE specialist will have better west coast multifamily deal flow, stronger relationships with the influential local players and better insight into hyper local trends/info vs a national investor, but is sacrificing the ability to invest in an all-together better market, property type, etc if there’s better relative value elsewhere. Also probably not really following public market opportunities either and almost certainly does not have relationships in that space. As you can probably see, this is a spectrum with trade offs in each direction. Every edge in this department comes with a corresponding blind spot. Hedge funds are often at the extreme end of the spectrum with the broadest lens. They can invest in practically anything, and therefore have a great perspective to assess, for example, the relative value of west coast multifamily PE vs distressed bonds of a public RE company. If the former is a better move, the sharpshooter might have an edge over the HF, but if the latter is a better move, the HF is the only one even capable of doing it. Not all HFs are equal and so some actually do specialize (L/S REIT equity, cmbs traders, etc.) but that’s the general comparison. The important takeaway is the spectrum trade off concept.

On the 2nd pt of toolkit, this dovetails w pt #1. The guys with a broader view tend to have broader relationships and the ability to structure all kinds of deals to get the exposure they want. E.g., a particular trade structure on a liquid mkt desk, flexibility to do all kinds of customized structures in a private asset cap stack, entity level co-invest, create securities to provide liquidity to public cos. These are just examples, there’s plenty of things you can do. The idea here is that they not only have the broad perspective but the means to implement it. Even if the west coast multi person sees something in the public markets, they’ve prob got fewer potential moves. They probably aren’t calling up Goldman’s mortgage desk to trade.