CMBS
Thesis
- Recognizing the secular dislocation and lack of liquidity that existed in the market for public real estate debt securities during the Global Financial Crisis, the Company recruited a highly experienced Commercial Mortgage Backed Securities (CMBS) specialist to join the firm and lead an initiative to acquire deeply discounted CMBS positions.
- Utilizing the specialist’s deep knowledge of the financial instruments, contacts within the securities industry, and the Company’s ability to underwrite the underlying collateral, Davis acquired 24 distressed or discounted CMBS bond positions, representing approximately $374 million of face value, for approximately $95.9 million between 2009 to 2013.
Execution
- Davis’ underwriting of the underlying commercial real estate properties revealed that these bonds were worth significantly more than their market value.
- Davis purchased these bonds at distressed or discounted pricing to our valuation, and sold many bonds as they reached Davis’ price targets, while holding the remaining positions through maturity.
- In two cases, Davis was able to secure control positions in significant portfolios of real estate, totaling an aggregate of 2.5mm square feet, through the purchase of relatively small bond positions.
At a Glance
- 24 distressed or discounted CMBS bond positions
- $374 million of face value
