Distress Sales Set to Grow, but Continue Weighing Down Broader Pricing
BusinessWeek reports: Despite the positive signs that have been emerging for the commercial property market, Bloomberg News columnist Venessa Wong portrayed the sector’s rebound as uneven due to the outstanding pool of distressed assets. The article pointed out, using the Moody’s/REAL Commercial Property Price Index, that prices for US commercial property sales “fell to their lowest level since June 2002.” Part of this decline can be attributed to sales out of distress, which accounted for one in four sales during August.
Ms Wong described October’s sale of the Extended Stay hotel portfolio, which the Lightstone Group traded to a group of equity funds that included the Blackstone Group, Paulson & Co, and Centerbridge Partners, as a “reflection of the current U.S. commercial property market.” After the Lightstone Group discovered it had overleveraged its 2007 purchase at the peak of the market in 2007 and could no longer service the loans, the 680-property Extended Stay portfolio fell into distress to become one of the largest outstanding commercial assets in the US. Though it has now been resolved, the article indicated that billions of distress is still outstanding, both weighing down property pricing and inhibiting lenders from issuing new debt.
The article quotes Brian Glanville, Integra Realty Resources managing director and chairman of the RICS (Royal Institute of Chartered Surveyors) Americas property board, as stating that “What you’re seeing is an opportunity to buy properties for less than what you can build them for today.” He also stated that the practice of “extend and pretend” is about to come to an end, as lender generosity for borrowers delinquency on loan payment runs out. “…the banks are no longer willing to carry them.” Glanville stated, Owners “…have to face reality now and see what they can get.”
View the full article on BusinessWeek: Distress Sales Set to Grow, but Continue Weighing Down Broader Pricing
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Posted by: Nina Turner