Deer Park Eying Residential Mortgage Market
Deer Park Road Management, a Colorado-based hedge fund, intends to invest in the residential mortgage market in anticipation of interest rate cuts later this year, CIO Scott Burg told Bloomberg.
Deer Park has raised $170 million for its inaugural mortgage opportunity fund launched in November 2023, which seeks to profit from transactions in legacy residential mortgage-backed securities, including loans issued in 2007 and earlier.
“There’s a significant amount of equity in these homes, so the risk in these assets is minimized versus the potential returns growth, particularly in a declining rate environment,” said Burg.
The fund is slated to close with around $200 million in commitments in early July and has a 12% hurdle rate with a three-year lock-in period, according to Burg.
Burg remarked that investors are quickly embracing opportunities and addressing real estate market disruptions, adding that obtaining legacy mortgages at a discount is an accessible opportunity.
His comments reflect those of Blackstone’s President Jon Gray, who stated in March that property values were at a low point, creating an opportunity to buy properties from banks and insurance companies that may need to sell at a discount.
Deer Park also intends to launch a fund focused on CMBS later this year or early 2025, with the goal of raising up to $250 million for the strategy, which has an 8% hurdle rate.
Its flagship hedge fund lost 23% last year, the most since its founding in 2008, as a result of poor recession bets; it has since liquidated the short positions and hedges that contributed to those losses. Burg said that the firm is now pursuing a long-only strategy in anticipation of the Fed’s rate cuts later this year.
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