Investors Tuning in to Distressed Commercial Real Estate Funds
Throughout the first two quarters of 2009, BHA analysts took note that overwhelmingly, alternative investors were requiring favorable liquidity terms when considering new opportunities. As a result, their interest in real estate funds dropped considerably. During the past few weeks, however, BHA analysts have seen a significant increase in investor interest in the real estate sector and, specifically, commercial property.
Commercial property is being devastated by the global recession two fold. First, property values, which are directly affected by the state of the economy, have been dropping. Second, many commercial property owners are being forced to sell their holdings. Decreases in consumer spending are forcing countless stores to close-stores that commercial property owners rely on to pay their mortgages. As more and more stores shutter their operations, more and more commercial property owners are being forced to sell their properties at steep discounts to avoid the risk of foreclosure.
This dislocation in the real estate market has opened up extremely lucrative opportunities and investors are expressing interest. A large family office based in New York City is currently evaluating real estate funds with a focus on commercial distressed investments. The firm thinks that the commercial sector offers significant opportunity for real estate funds to buy up properties at a considerable discount. Additionally, a U.S. government pension plan articulated its interest in capitalizing on the noteworthy dislocation within commercial real estate caused by the downtown in both consumer spending and the overall economy.
Interest in real estate funds has significantly increased in recent weeks. Investors have taken notice of the precarious environment in which commercial real estate has found itself, and they are actively seeking managers that are able to successfully take advantage of this opportunity.