Gabriel Bernarde, Researcher, Viceroy Research

How to short multifamily real estate

Gabriel Bernarde, Viceroy Research 

Digest this stark statistic: a Collateralized Loan (CLO) portfolio with over 300 loans is showing a weighted average debt service coverage ratio of just 0.63. It is basically a disaster and one that my guest today is shorting – heavily.

Gabe Bernarde is co-founder of Viceroy Research and has written a report called “Slumlord Millionaires”, that covers a well-known bridge lender who has been doing a lot of lending to multifamily sponsors. The report reveals an entire portfolio of multifamily loans that appear to be underwater and that are wrapped up in CLOs.

In theory, CLOs are bullet proof because the lender who owns/manages them can swap out poorly performing loans for better performing ones, protecting the integrity of the entire portfolio. It’s a bit like having a fund with apartment buildings in it where the sponsor can swap out sub-performing assets for others to keep the funds’ finances healthy.

What Gabe's research concludes is that this structure is fine until all the loans in a portfolio, or a substantial majority of them, are bad. Then you have nothing good to replace the bad.

I've been researching CLOs ever since I spoke to James Eng of Old Capital for the podcast a few weeks ago. He reported having brokered $2 billion and told me 90% were underwater. Then I spoke to Dan McNamara at Polpo Capital, who is famous for having successfully shorted malls in 2020 who also thought that some CLOs were in dire straits and ripe for shorting.

Look, there are multiple ways to make money in a real estate downturn.

You can buy discounted assets from sponsors who are forced to sell or buy non-performing loans or REO from banks. You can provide rescue capital or set up a debt fund.

Or you can short the stock of real estate companies you think are overvalued and that is exactly what my guest today, Gabe Bernarde at Viceroy Research, is doing.

Learn what he is doing, how he's doing it, what he sees, why he thinks there is a very significant likelihood that multifamily real estate assets are going to hit rock bottom in the next few months, and discover his angle to making money in this market.

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