Weekly News & Capital Markets Perspective

This week’s perspective is provided by Jim O’Connell:

James_OConnell_OptimizedDISTRESSED OR NOT DISTRESSED?

By the time any of you read this I will have wrapped up my comments as part of a panel at the PNC/University of Cincinnati Economic Outlook Conference this week.  I was asked that my comments provide some perspective on distressed real estate.  I felt I had a fairly strong set of experiences on that topic because over the last 9 months or so our team has sold over 2.2 million square feet of “distressed” assets.  So in preparing for that presentation, no I didn’t wing it, this time, I not only had the value of those transactions as background but I also was able to find a number of statistics and perspectives on Distressed Real Estate.  

Here is a short summary of those comments from the presentation:

  • Distressed Real Estate is a matter of perspective and definition clarification, but it’s not broken real estate
  • One man’s distress is another’s opportunity
  • On a national basis, the work-out of distressed assets is more than half way through the process
  • The reported Recovery Rate on assets is surprisingly high (before costs and fees)
  • CMBS loans are not the majority contributor to distressed asset situations
  • Transaction activity of distressed asset sales is a bright spot in the real estate recovery and likely to remain high in 2013
  • Look for distressed borrowers or situations, not distressed properties
  • The gap between buyers and sellers on pricing for distressed real estate is closing and more deals are getting done
  • In terms of Recovery Rate, the Midwest is in the lower half of the scale for workout success, the best is in the Northeast, which isn’t good for buyers there
  • In the end, the sale of distressed real estate acts as a re-pricing mechanism for overleveraged assets

So if you’re a value-add or opportunity buyer of commercial real estate (not distressed) the time to act IS NOW!  Transactions are being closed at increasing velocity, basic fundamentals are improving and pricing is going up.

What do you think?  We’d like to hear from you.

Jim O’Connell

ARTICLES OF INTEREST___________________________

2013 Emerging Trends in Real Estate
The enduring low-gear real estate recovery should advance further in 2013.  Emerging Trends survey suggest that modest gains in leasing, rents, and pricing will extend across U.S. markets from coast to coast and improve prospects for all property sectors, including housing, which finally begins to recover.  Read more…

Commercial Real Estate Outlook: Top Ten Issues in 2013
The U.S. CRE recovery, although slow, has been visible in improved fundamentals, capital availability, asset pricing, and transactions.  In fact, REITs as an asset class continues to outperform others, primarily due to higher liquidity and relatively easy access to capital markets. 
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U.S. Commercial Real Estate Forecast to Steadily Improve 
U.S. stock index futures pointed to a slightly lower open on Tuesday, with investors cautious ahead of the Federal Reserve’s announcement on monetary policy on Wednesday. Read more…

Survey Shows Bifurcated Recovery Continues 
Commercial real estate executives are optimistic about the state of the market but remain wary of the repercussions of potential interest rate hikes, lackluster job creation, and the massive U.S. debt, according to Real Estate Roundtable’s 1Q13 survey.  Read more…

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