Bloomberg - Evening Briefing - Rise of the shadow lenders

Shadow lenders are circling commercial real estate, a large asset class that traditional banks and the bond market are increasingly avoiding, potentially forcing borrowers to pay a lot more. Regional banks are behind about 70% of US commercial real estate loans. But last month’s banking turmoil combined with rising loan defaults on troubled properties has burned small banks, prompting them to scale back. The other major source of liquidity for property owners, namely the bond market—where commercial real estate mortgages are packaged and sold as securities—has dried up too.

That leaves room for a rising class of shadow lenders to step in and fill the void. They’re mostly private credit funds using their own capital to dish out loans—often charging more than banks for the privilege. According to Alexander Popov, who heads Illiquid Credit Strategies and Carlyle Credit Opportunities, “the need for capital in these industries, coupled with changes in the credit markets overall, is creating attractive investment opportunities.” —David E. Rovella

As we move into the fourth year of the pandemic, it’s become clear to some financial observers that commercial real estate isn’t bouncing back. Kyle Bass is one of them, and he has some advice for real estate investors: Tear it down. The founder of Dallas-based Hayman Capital Management says office buildings in cities need to be demolished because demand isn’t returning and it’s impractical to turn most towers into apartments. “It’s one asset class that just has to get redone,” said Bass. “Redone meaning demolished.”

No one stirs inside an office building in Washington DC on Feb. 22. The main business district remains depopulated as many federal employees, who account for one-in-three downtown jobs, work from home. Photographer: Andrew Harrer/Bloomberg

The amount of money parked at money-market funds climbed to a fresh record over the past week. The funds have been scooping up cash, fueled in large part by depositors pulling their money from US banks. Much of that flow was driven by more attractive rates—but concern about the steadiness of smaller lenders helped turbocharge the trend, too. 

The FBI arrested a 21-year-old Air National Guardsman in connection with the leak of highly classified documents including maps, intelligence updates and the assessment of Russia’s war in Ukraine. Jack Teixeira was taken into custody Thursday afternoon without incident, authorities said. He will be charged with “unauthorized removal, retention and transmission of classified national defense information,” Attorney General Merrick Garland said at a Washington press conference, adding that the “investigation is ongoing.” Garland said Teixeira will be arraigned in Boston federal court.

Alleged classified files leaker Jack Teixeira is taken into custody by FBI agents in Dighton, Massachusetts on Thursday. Source: WCVB-TV

A ruling by a federal appeals court panel set aside some of a lower court decision that was to temporarily ban the use of an abortion pill across America. But the two-judge majority, both Trump appointees, allowed some of US District Judge Matthew Kacsmaryk’s ruling to stand. The latest decision still restricts access to a medicine that was approved for use 23 years ago. On Thursday, Attorney General Garland said the Biden administration will ask the Supreme Court to step in. Such a petition, however, will land first before Associate Justice Samuel Alito, the author of the ruling that threw out Roe v. Wade.

Brazil’s Luiz Inacio Lula da Silva called on BRICS nations to come up with an alternative to replace the dollar in foreign trade, supporting China’s crusade against US global dominance just as he prepares to meet with Xi Jinping in Beijing. Lula’s remarks were made on Thursday during a visit to the Shanghai-based New Development Bank, an institution created by BRICS countries, which, along with Brazil and China, include Russia, India and South Africa. Former Brazil President Dilma Rousseff is the bank’s new chief executive.

Luiz Inacio Lula da Silva and Dilma Rousseff Photographer: Victor Moriyama/Bloomberg

It’s already happening. Apple assembled more than $7 billion worth of iPhones in India last fiscal year, tripling production in the world’s fastest-growing smartphone arena after accelerating a move beyond China. The US company is said to make almost 7% of its iPhones in India through expanding partners from Foxconn Technology to Pegatron. That’s a significant leap for India, which accounted for an estimated 1% of the world’s iPhones in 2021.

JPMorgan alleged that Frank founder Charlie Javice transferred millions of dollars to a shell company after the bank discovered it had been defrauded in its acquisition of her college financial planning site.  JPMorgan sued Javice in December, alleging she faked data that greatly inflated Frank’s customer count to mislead the bank into buying the company for $175 million. Javice, 31, also faces criminal prosecution and a lawsuit filed by the Securities and Exchange Commission. She has denied JPMorgan’s allegations and countersued.

Charlie Javice outside court in New York on April 4  Source: Bloomberg

Bloomberg continues to track the global coronavirus pandemic. Click here for daily updates.

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If you’re thinking of ditching your July 4th barbecue or fall road trip for a Caribbean summer vacation this year, you’re not alone. Air travel to the Caribbean for the period from June through August 2023 shows a 48% increase in booked flights over the same months in 2019. The seasonal lines have blurred, with summer now the Caribbean’s high season.

Eden Rock St. Barths Source: Oetker Collection

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Bloomberg Design + Make: How are the world’s most creative minds responding to a world in flux? On April 25 in London, those on the cutting edge of design, manufacturing and entertainment shine a light on innovative solutions that can make the world better, smarter and more sustainable through good design. Speakers include executives from Ingka Group and Foster + Partners. Join in person or virtually. Learn more here.