Resource Capital Closes Two Loans - Analyst Blog

Resource Capital Corp. (RSO), a real estate investment trust (REIT) that invests in commercial real estate debt and other commercial finance assets, has recently obtained two self-originated loans totaling $17.9 million.

The deal signifies a positive development for the company, which is presently in a defensive mode as it tries to weather the turmoil in the credit markets and downturn in commercial real estate.

The company procured a three-year loan of $8.1 million secured by a neighborhood shopping center in Orlando, Florida. The loan has two one-year extension facilities and has an initial floating interest rate of 8.75%.

Resource Capital also obtained a three-year $9.8 million loan collateralized by a portfolio of retail and multifamily buildings in San Diego, California. The loan has an initial floating rate of 7.75% and has two one-year extension options.

The investment strategy of Resource Capital concentrates on commercial real estate assets and commercial finance assets. Commercial real estate assets include mortgage loans, mezzanine debt, CMBS (commercial mortgage backed securities) and A-Notes. Commercial finance assets include senior corporate loans, asset-backed securities, equipment leases, CDOs (collateralized debt obligations) and private equity investments.

Resource Capital earns the spread between revenues from assets and the cost to finance those assets. The company is externally managed by Resource Capital Manager Inc., an indirect wholly-owned subsidiary of Resource America Inc. (REXI), an asset management company involved in financial fund management, real estate and commercial finance.

Challenging credit market conditions and a relatively unstable economy have impacted the financing and investing strategies of Resource Capital. This has negatively affected its ability to originate new investments, and has resulted in an increasing number of loan modifications in commercial real estate loans.

As such, we currently have a Neutral recommendation on Resource Capital and a Zacks #5 Rank, which translates into a short-term Strong Sell rating.