Improvements in CRE Markets Driving Banks to Work Out Legacy Distress
Bloomberg - Businessweek reports: In a recent article in Bloomberg’s Businessweek magazine, columnists Brian Louis and David M Levitt reiterated an increasingly common thesis about commercial real estate as the market heads into 2011: the worst is behind us. “Prices of commercial properties sold by institutional investors surged 19 percent in 2010” while “Near-record-low interest rates mean buyers can get cheap financing, which improved their returns. At the same time, rising earnings give banks a cushion to absorb losses, enabling them to sell distressed properties rather than hang on to them. Investors, convinced the worst is over, have pushed prices on bonds backed by commercial mortgages to the highest level in two years.”
On this last point, Real Capital Analytics managing director Dan Fasulo remarked to Businessweek that, “Now that values are on the upswing, it’s given owners and lenders more wiggle room to work out these troubled situations.”
The distressed properties banks are spinning off their books have not been marketed at the rock-bottom prices that investors have spent the past two years hoping for. However, bargains relative to the unrealistic pricing of the market-peak are easier to find. Citing a recent transaction recorded by RCA, Businessweek mentioned USAA Real Estate’s recent acquisition of Las Olas Centre in Fort Lauderdale, FL, which the firm recently purchased out of distress for $170 million. That was $61 million less than the former owner paid for it in 2007.
Additionally, distressed workouts being tracked in the commercial real estate market have been reflected to different degrees by individual property sectors. For instance, Businessweek points out, “Of the $52 billion of retail properties to fall into default [this cycle], just over half have completed workouts, ‘giving the retail sector the distinction as the first property type to pass the halfway point in resolving its distress.”
View the full article on Bloomberg - Businessweek: Improvements in CRE Markets Driving Banks to Work Out Legacy Distress
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Posted by: Nina Turner