Wall Street Investors Increase “Big Short” Bets on CMBS Retail Loans

In 2015, “The Big Short” movie based on the Michael Lewis book chronicled a handful of investors who struck it rich by betting on the failure of subprime residential mortgages. Some investors are making a gamble that retail-backed CMBS loans could be the next “big short.”

Hedge fund company Alder Hill Management is one high-profile player shorting CMBS with high concentrations of retail loans. The Wall Street Journal first reported on the hedge fund’s short 18 months ago, followed by a more recent story in early August that said the hedge fund made an additional short investment on 2012 and 2013 era loans. Earlier this spring, Bloomberg also reported that Deutsche Bank and Morgan Stanley had both recommended buying credit protection against, or shorting, segments of CMBS with heavy concentrations of retail loans.

Some people are looking at retail loans as the next “big short”, says Manus Clancy, senior managing director and the leader of applied data, research, and pricing departments at Trepp. “There are some similarities, but there are a lot of differences,” he notes. One difference from the subprime short is that there were very few investors taking those short positions. “In this case, you have a pretty good amount of people on either side, meaning longs and shorts,” says Clancy. In addition to Alder Hill there are about two dozen investors that have either already taken a short position or are looking at the opportunity, he adds.

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