Pimco, the world's largest bond fund manager, has launched a real estate finance company in a bid to capitalize on the expected transition of U.S. mortgage markets from government support, according to a regulatory filing on Tuesday.
Pimco REIT Inc. would buy, manage and finance residential and commercial mortgage-backed securities, according to the filing with the U.S. Securities and Exchange Commission for an initial public offering of up to $600 million.
The new real estate investment trust comes at a crossroads for the $10.6 trillion U.S. mortgage finance industry, which is set for the biggest overhaul since the Great Depression.
The Obama administration and Congress are tackling the mammoth task of trying to dismantle the government-sponsored mortgage enterprises Fannie Mae and Freddie Mac, which have been under U.S. conservatorship since they came close to failing in mid-2008.
The U.S. House Financial Services Committee plans to vote in early May on a bill to wind down Fannie Mae and Freddie Mac within five years.
Other mortgage REITS including PennyMac Mortgage Investment Trust have been laying groundwork to fill any void.
Guarantees from Fannie Mae, Freddie Mac and the Federal Housing Administration support some 90 percent of all new lending, out-competing private investors that have said they would require greater compensation to cope with stronger regulation and a fragile housing market.
"We believe that the U.S. mortgage finance system is undergoing historic change," Pimco REIT said in the filing.
"Significant increases in regulation and public policy are influencing which investors will have the financial ability to hold real estate-related assets. We believe that private nonbank capital will represent an increasing share of these assets in the years to come."
Capital is also needed to meet refinancing demand for more than $2 trillion in office, hotel, apartment and industrial building loans in the next five years, it said in the filing.
A Pimco spokesman declined to comment.
Pimco's top fund competitor, BlackRock Inc., said last year that it would use an existing $1 billion fund as backing to originate new, nongovernmental backed home loans, in a step toward restarting private securitizations.
Jennifer Bridwell, who leads Pimco's mortgage-related product development, is the chief executive officer, according to the filing. Dan Ivascyn and Scott Simon, senior portfolio managers at Pimco, will be co-chief investment officers.
Concurrently with the IPO, the REIT expects to sell at least $10 million worth of common stock in a private placement to some of its senior managers and other executives at Pimco and its affiliates.
After the offering, Pimco REIT will purchase a portfolio of government-supported mortgage-backed securities, it said in the filing. Other "target assets" will include private residential mortgage-backed securities, and residential and commercial property loans, it said.
"Being one of the preeminent financial firms, I'm sure the government is very interested in getting them motivated," said Dan Nigro, a mortgage bond consultant in Montclair, New Jersey, and former portfolio manager.
The new Pimco company plans to list shares on the New York Stock Exchange under the symbol "PIMR."
Credit Suisse, Goldman Sachs and JPMorgan are underwriting the IPO, according to the filing.
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