News flow for short sellers is picking up today, with Arbor Realty (NYSE:ABR) among the companies seeing big-time selling pressure build today. At the time of writing, shares of ABR stock are down more than 19%, wiping out the year-to-date gains the stock had seen as of yesterday.
This move comes on news of a probe by the Department of Justice (DOJ) over the company’s lending practices and its loan book. Short sellers appear to have followed suit, with the commercial mortgage real estate investment trust (REIT) appearing to be under attack from those looking to bet against its stock.
The DOJ is reportedly assessing the company’s disclosures, with a specific focus on how Arbor Realty has shared its loan book performance with investors. This is an ongoing investigation, so the company hasn’t responded for comment yet. But given what’s being alleged, today’s move certainly makes sense.
Let’s dive further into what was announced and why investors are selling ABR stock heavily today.
ABR Stock Sinks on Regulator Probe
To a certain degree, the current macro environment could lead to a surge in bearish bets, regardless of this recent headline news. Most investors are already well aware that commercial real estate is under serious pressure. That’s because commercial real estate valuations have declined sharply due to structural trends (such as work-from-home) that have accelerated following the pandemic.
Given the nature of the difficulty of ascertaining the true value of real estate assets on a company’s loan book, there’s a significant grey area within which many real estate companies operate. It’s unclear just how viable this DOJ probe will be in proving wrongdoing. But of course, the mere probe itself is likely enough for many investors to look for other options in this space.
I think investors may want to be very careful with the commercial real estate sector right now. Regulators are likely to take a harder look at how companies disclose their performance, and this probe could be among the first of many. Accordingly, I wouldn’t be surprised to see sector-wide moves to the downside in the coming days on this news.
On the date of publication, Chris MacDonald did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
