Distressed commercial real estate expert Shlomo Chopp has launched Terra Strategies, an asset management firm focused on investing in undervalued property through derivativesThe firm is capitalizing on the disconnect between real estate bond and equity valuations. Its differentiated three-pronged expertise across property operations, loan financing and loan restructurings enables the firm to identify opportunities around quality real estate at significant discounts that are missed by over-generalizing and macro-assuming property or securities investors.
Managing Principal Chopp is supported by a close-knit team of commercial real estate, finance and property operations executives. Chopp’s career in commercial real estate spans more than 20 years and involves investments, operations, debt restructuring and proptech. In 2010, he founded the distressed debt consulting firm Case Property Services and in 2017 he developed the double-patented retailOS platform, a multi-channel ecosystem that blends e-commerce, retail and fulfillment. Together, Terra Strategies and its affiliates have acquired, managed and operated more than $2 billion of commercial real estate assets.
“After a long period of interest rate expansion, commercial real estate values are now resetting, creating a bevy of challenges for borrowers and lenders alike,” said Chopp. “The current environment is similar to how legendary investor Sam Zell described the real estate market in 1975 in that it presents the opportunity for savvy, well-capitalized investors with management skills to acquire attractively priced assets with favorably misaligned risk/reward ratios. We launched Terra Strategies for this purpose.”
Terra Strategies’ credit-to-property crossover strategy connects discounted bond positions and real estate equity investments. Terra’s investments may take various forms including that of well-collateralized, high-yielding CMBS tranches or trust control; the investment of loan modification capital while assuming title and at times retaining in-place low interest rates or providing regional banks with liquidity that is swappable for defaulted loans. A further value-add comes in the form of Terra Strategies’ experience owning and operating commercial real estate and track record of innovation — an often-overlooked factor in a sector impacted by obsolescence, the company added.
“In real estate and its securities, there are traders, lenders and operators. While a bond only increases its yield by reducing its purchase price (because the payments are fixed), a property increases its yield by generating more cash flow,” Chopp said. “Historically, operators have left massive dollars on the table by not recognizing that when a bond seller trades at a market-driven higher yield, an operator-investor can realize a substantial discount on their value-added bricks.”
