The much-predicted deluge of delinquent loans in the commercial real estate market is not bad news for everyone, as billions are being raised by the industry to take advantage of the distressed assets that will be hitting the market. Some think this is another sign of the end of the recession and financial crisis.

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There have been three recent initial public offerings by companies looking to buy distressed Commercial Mortgage Backed Securities (CMBS) and related securities. Some will also dabble in the Residential Mortgage Backed Securities (RMBS) market.

Invesco Mortgage Capital Inc (NYSE:IVR) raised $201 million in July 2009 in a combination of a public and private offering. The company invests in agency RMBS, as well as non-agency RMBS, CMBS and residential and commercial mortgage loans. Invesco Mortgage Capital has been busy since then, and has already purchased $829 million in securities as of mid July 2009. The company is externally managed and advised by Invesco Ltd. (NYSE:IVZ), an asset management firm.

Starwood Property Trust, Inc. (NYSE:STWD) just raised $952 million in gross proceeds in its initial offering, also a combination of public and private equity. This makes the deal the largest in 2009 to this point.

PennyMac Mortgage Investment Trust (NYSE:PMT), known by the name of PennyMac, raised $320 million in its initial public offering, and this company will invest primarily in RMBS. The market didn't like this deal that much as PennyMac had originally tried to raise $750 million, but had to reduce its appetite in response to the market.

All three are organized as Real Estate Investment Trusts (REIT) and must pay out 90% of its earnings as dividends to investors.

Others in the Running
Two other companies also recently filed for IPOs but have not come to market yet. Marathon Real Estate Mortgage Trust and Brookfield Capital Corp are looking to raise $300 million and $500 million, respectively. Brookfield Realty Capital Corp will be externally managed by Brookfield Asset Management (NYSE:BAM).

Investing in mortgage securities is not a new business, and Capstead Mortgage (NYSE:CMO) is one that has been doing it for years. Capstead Mortgage uses leverage to buy adjustable residential mortgage pass-through securities that are guaranteed by Fannie Mae (NYSE:FNM), Freddie Mac (NYSE:FRE) or Ginnie Mae.

The Bottom Line
While this sounds like a sure fire way to get your head handed to you in this market environment, the company has made it through the financial crisis relatively unscathed. The company reported $42.5 million in net income, or 58 cents in the second quarter of 2009.

Many are heralding the recent spate of Mortgage REIT IPOs as a clue to the end of the recession and financial crisis. This may be premature, as all it might be is some investors seeing an opportunity to make money in the market. (To learn more, read The REIT Way.)

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