Trez Capital Mortgage Investment Corp., one of the largest private commercial mortgage lenders in Canada, announced temporary redemption suspensions for five of its funds Monday, as it manages “elevated” requests from investors to cash out of them.
The temporary freeze applies to the Trez Capital Prime Trust, Trez Capital Yield Trust, Trez Capital Yield Trust U.S. CAD, Trez Capital Yield Trust U.S. USD and Trez Capital Private Real Estate Fund Trust, the Vancouver-based firm said in a release. No other funds are affected, it noted, though the firm lists only those five funds on its website.
Trez Capital said it suspended redemptions for the funds as it manages “elevated unitholder redemption requests, ongoing loan funding obligations and completing active loan workouts.”
At the same time, the private real estate investment firm said it’s “evaluating strategic alternatives” to support its long-term growth and would update investors in due course.
Asked how this will impact investors, Trez Capital said in a written statement that the temporary suspension of redemptions is “a proactive measure designed to safeguard the long-term interests of our investors while preserving the flexibility of the funds.”
“Importantly, monthly distributions will continue as scheduled — consistent with Trez Capital’s nearly 30-year track record,” the statement said. “We will manage this period with discipline and transparency while maintaining the stability that has defined Trez Capital through multiple market cycles.”
The firm did not say how long the redemption suspensions would last, but it confirmed its regularly scheduled quarterly call for unitholders will be held Sept. 3.
This is not the first time a mortgage lender has announced investor redemption suspensions in Canada.
In 2020, Trez Capital was one of several firms to freeze investor redemptions due to market turmoil caused by the Covid pandemic. It reopened its funds to redemptions a few months later.
Other private real estate investment firms have made similar moves in recent years, including Rompsen Investment Corp., which temporarily halted investor redemptions in November 2022 due to “suppressed” loan payoff activity, and Hazelview Investments, which temporarily froze redemptions on its Four Quadrant fund twice between 2023 and 2024.
What do investors need to know?
Brent Smith is the chief investment officer of Kinsted Wealth in Calgary, a firm that commits about 65% of its assets under management to private assets and has previously invested in Trez Capital’s funds.
Smith said it’s possible that Trez Capital is facing a surge in redemption requests because of the increased competition in the private market space in Canada.
“Five years ago, access to semi-liquid, income-oriented solutions was next to nothing. Blue Owl hadn’t come to Canada, Oaktree hadn’t come to Canada, Morgan Stanley hadn’t come to Canada. You name it hadn’t come to Canada. KKR wasn’t here,” he said.
“Well, today, they’ve all come here with semi-liquid solutions. And so, I think it’s going to be difficult for smaller Canadian firms to compete for Canadian investor dollars.”
Trez Capital’s mention of “evaluating strategic alternatives” in its news release could suggest that the firm “is possibly looking for a strategic partner with deeper pockets,” Smith said.
“I mean, they are dependent on their loans, are dependent on Canadians providing them with money to invest, and if that dries up, then there’s definitely a going concern issue.”
He also said that gating isn’t always a sign of trouble, noting that there’s a difference between gating due to loan impairment and gating due to an asset-liability mismatch. It’s unclear which is behind Trez Capital’s decision to gate its funds.
Smith emphasized that this case should serve as a reminder to people to only invest in private market funds with liquidity constraints if they have a long-term horizon.
“As an investor or an advisor allocating to these strategies, if you’re using them to achieve some kind of illiquidity premium, but you expect to be able to get your capital back every single month, then you shouldn’t be investing in these [vehicles],” he said.