Mortgage REIT JER Investors Trust Inc. Files Chapter 11 Bankruptcy
JER Investors Trust Inc., a mortgage REIT, has reportedly filed for bankruptcy, signaling further challenges in the commercial real estate sector, according to an article in Yahoo Finance.
The trust, which lists private equity firm C-III Capital Partners among its major shareholders, is facing debts exceeding $100 million while having assets totaling less than $50 million. Filed under Chapter 11 in Wilmington, Delaware, the petition aims to temporarily pause most debt payments as the company seeks strategies to sustain operations.
JER Investors manages a portfolio of mortgage-backed securities and various debts linked to commercial real estate. The rise in interest rates this year has intensified pressure on commercial properties, particularly those affected by tenant losses during the pandemic when office workers transitioned to remote setups.
This bankruptcy filing follows similar distress in the real estate market, notably the recent bankruptcy filings of Pennsylvania Real Estate Investment Trust and WeWork Inc., both grappling with challenges tied to shifting market conditions.
C-III Capital Partners holds a substantial stake of at least 8.4% in JER Investors and is also a creditor owed almost $20 million, as indicated in the bankruptcy filing. The Bank of New York Mellon Trust is listed as a creditor, being owed $93.9 million.
The case is registered as JER Investors Trust Inc., 23-12109, in the US Bankruptcy Court, District of Delaware (Wilmington).
Mortgage REIT Investment Losses
Mortgage REITs or mREITs help provide essential liquidity for the real estate market by investing in residential and commercial mortgages, as well as residential mortgage-backed securities (RMBS) and commercial mortgage-backed securities (CMBS), according to Nareit.
The Risks of Investing in Mortgage REITs
Mortgage REITs pose higher risks compared to other types of REITs due to specific factors:
Interest Rate Risks: Changes in interest rates impact all REITs but have a more significant effect on mortgage REITs. Fluctuations in short- and long-term rates can alter net interest margins by elevating funding costs and reducing interest income. Such shifts can also impact the REIT’s net asset value and share price.
Prepayment Risk: Mortgage borrowers have the option to refinance or sell their properties, compelling mortgage REITs to reinvest repaid loan amounts in the prevailing, potentially lower interest rate market compared to the existing mortgage rates.
Credit Risks: Commercial Mortgage REITs face credit risks if borrowers default on their loans.
Rollover Risk: Residential mortgage REITs typically hold long-term mortgages and securities. As these loans mature, they need to secure funding at favorable rates to roll over these loans, posing potential challenges.
Investigating Potential Claims – JER Investors Trust
The White Law Group is investigating FINRA arbitration claims involving broker dealers who may have improperly recommended mortgage REITs to investors.
Brokerage firms are required to perform due diligence on any investment they recommend, including mortgage REITs. They must ensure that the investment is suitable for a particular investor in light of that investor’s age, investment objectives, income, net worth, and investment experience. Given the current risk of devaluation of these REITs, such investments are likely only suitable for wealthy and/or sophisticated investors.
If you have suffered losses in a JER Investors Trust or another mortgage REITs, please call the securities attorneys of The White Law Group at (888)637-5510 for a free consultation.
The White Law Group is a national securities fraud, securities arbitration, and investor protection law firm with offices in Chicago, Illinois and Seattle, Washington.
For more information on the firm, please visit https://www.whitesecuritieslaw.com
