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Cash-Flush Buyers Dip into Distressed Commercial RE

Some data shows that global real estate funds operated by private-equity firms held $544B in cash at the end of 2Q 2023, up from $457B at the end of 2Q 2022.

NEW YORK – Regional banks and other lenders have grown concerned about the volatility in commercial real estate, but investors are poised to scoop up distressed properties with cash.

Preqin data show that global real estate funds operated by private-equity firms held $544 billion in cash at the end of 2023's second quarter, up from $457 billion at the end of 2Q 2022.

The pressure is on for office building, hotel, and apartment building owners, as higher debt-service costs are hitting those with floating rate debt. For example, Harbor Group International spent more than $600 million over the last year on seven apartment building developments, two of which are in Palm Beach, Florida, but some of those apartment buildings were not filling up as quickly as expected.

Richard Litton, president of Harbor Group, said, “Given the pressure on regional banks, those extension options were not necessarily available to developers. Now, investors are ready to either buy the properties or offer owners rescue capital for preferred returns.”

MSCI Real Assets data found that by the end of 2023, commercial property distress totaled $85.8 billion, up from $56.9 billion at the end of 2022 and the highest level since the third quarter of 2013.

Distress is likely to continue, forcing owners to refinance, particularly the over $2.2 trillion in commercial mortgages scheduled to mature between 2024 and 2027, reports Trepp.

However, with the availability of capital from funds and other resources for distressed assets, the struggles of the commercial property market are not near the levels of the 2008-2009 financial crisis. 

Source: Wall Street Journal (02/12/24) Grant, Peter

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