INVESTORS with a record hoard of money to finance distressed commercial real estate are finding themselves in a tough spot: There’s nowhere to spend it.
The massive wave of defaults expected after the coronavirus shuttered offices, hotels and stores last year has so far failed to materialise.
Now, as the US economy swings from pandemic lows to a vaccine- and stimulus-induced rebound, the window of opportunity for discounted deals is closing before it ever really opened.
That may sound like positive news to most Americans, but to a select group of investors who anticipated raking in big profits from the misfortunes of others, it’s a problem.
Troubled properties aren’t coming to market because owners have little pressure to sell. Commercial real estate prices have held up – or even risen – because so much money is chasing so few deals.
“We’re starting to see frustration rolling over into desperation,” said Will Sledge, senior managing director in the capital markets unit of brokerage Jones Lang LaSalle Inc. Investors are “willing to push prices up and their yields down in order to simply deploy capital”.
US private equity funds stockpiled more than US$250 billion for commercial real estate loans as at March 23, according to Preqin. That included a record US$75.8 billion for distressed debt, a figure that grew in response to last year’s eruption of late payments on properties.
Fundraisers continue to rake in commitments. Cerberus Capital Management closed a US$2.8 billion opportunistic real estate fund on Monday, exceeding an original US$2 billion target. Oaktree Capital Management said last week it raised US$4.7 billion real estate opportunities fund, surpassing its US$3.5 billion goal.