Short sellers up their wagers against commercial real estate again

Pressure at regional banks, a continuing downturn in US office prices and elevated interest rates have money managers piling back into bearish wagers on one of their favorite sectors: commercial property.

Data center real estate investment trust Equinix Inc. slumped to the lowest since January on Wednesday after Hindenburg Research said it was betting against the firm’s shares, while S&P Global said earlier this month that REITs are the most shorted stocks globally.

Investors have been rattled in recent weeks by lenders including New York Community Bancorp. and Deutsche Pfandbriefbank AG setting aside larger provisions for property-loan losses. The ongoing vulnerability in offices saw those property values plunge 15.2% in the year through February in the US, according to an MSCI Real Assets report published Wednesday.

“Investors are finally waking up to the fact that rates are not going back to anywhere close to zero and the office sector has changed forever,” said Daniel McNamara, founder of Polpo Capital Management, who’s shorting the sector.

Short sellers borrow stock and sell it, betting they can profit by buying it back at a lower price later. They are also using credit derivatives and indexes and equities to bet against landlords, their debt and their lenders.

Almost 13% of NYCB shares are currently being shorted, up from 3% in November, according to S&P Global. One of the reasons is that the lender is a major player in New York multifamily apartment buildings with rents controlled or stabilized, the value of which have been falling swiftly.

Muddy Waters founder Carson Block told Bloomberg Television that concerns about emerging distress in multifamily housing is one reason his firm has grown “more bearish” on Blackstone Mortgage Trust since...