Seer Capital Management Is Planning to Invest in CMBS B-Pieces










Seer Capital Management is getting more bullish on U.S. commercial real estate. The $2.1 billion hedge fund firm, started by ex-Deutsche Bank AG executive Phillip Weingord, is planning a fund dedicated solely to buying the riskiest pieces of bonds backed by commercial properties, according to a presentation, a copy of which was obtained by Bloomberg News.

Holders of so-called B-pieces are the first to lose money when borrowers default; in exchange they earn higher returns and control which mortgages are included in new deals created by Wall Street, making them gatekeepers for the rest of the $550 billion market. Seer’s new fund, which will be run by Weingord, will add to about $400 million in similar investments the firm accumulated since the beginning of the year, according to the presentation.

The securities have lured hedge funds and other yield- hungry investors seeking out novel strategies amid a resurgence of debt issuance used to finance shopping malls, skyscrapers, hotels and apartment complexes. The rush of capital into commercial-mortgage finance is helping boost property prices across the U.S., with values in the biggest cities about 13% above their 2007 peak, according to the Moody’s/RCA Commercial Property Price Index.

“There is a lot of positive momentum,” according to Lea Overby, a debt analyst at Nomura Holdings Inc. “People are looking at commercial real estate as a good place to put money.”

Wall Street banks are on pace to offer $90 billion in new CMBS deals this year, up from $40 billion in 2012, according to data compiled by Bloomberg. Sales revived after the market shut down following the credit market seizure in 2008.

Analysts see lending standards sliding toward the loose terms that helped fuel the last property boom. That ended when values plunged as much as 42% from records set in 2007, according to Moody’s Investors Service.

Underwriting will likely continue to deteriorate as sales keep climbing, Moody’s analysts led by Tad Philipp said in a report earlier this month. The market runs the risk of overheating with too much cash pouring into B-pieces, according to Nomura’s Overby. Increased competition could lower underwriting standards, she said.

B-piece investors like Seer police standards in the $550 billion commercial-mortgage bond market by digging into property details before other investors and throwing out loans deemed too risky. Even as concern mounts that lenders are getting too aggressive, Seer says in its presentation that underwriting on current transactions is “far more conservative” than on deals completed prior to the financial crisis.

Seer’s presentation also notes there are as few as five regular participants buying B-pieces. Given the need for a team of analysts and underwriters to inspect the loans in the pool, there are a limited number of firms able to do this, the documents say.

Weingord started Seer in 2008 after working at Deutsche Bank for eight years, where he had oversight of U.S. fixed income and derivatives as head of global markets Americas. Others at the New York-based firm include co-chief investment officer Richard d’Albert, who was Deutsche Bank’s global head of structured credit, and Karen Weaver, previously global head of securitization research at the Frankfurt-based lender.

Seer is considering a longer-term horizon for the fund’s lifespan than its other strategies to match the investments, which can mature in eight to 10 years, according to the presentation. The firm is targeting annual returns in the “low to mid-teens,” it said.

Seer’s main fund rose 5.2% this year through November and has posted an annualized return of 15% since starting in 2009, according to a person familiar with the matter, who asked not to be identified because the information is private.

Catherine Jones, a spokeswoman for Seer at Polisi Jones Communications LLC, declined to comment on the presentation.

Leave a Reply