It's no secret that for quite awhile commercial real estate (CRE) transactions, including distressed assets, have been at a standstill. But according to a new study by the global advisory firm ""AlixPartners LLP"":http://www.alixpartners.com, that could all change in[IMAGE]2010. In fact, the firm's findings suggest that investment opportunities in the commercial sector could be bigger in the months ahead than even in the heady days of the early 1990s.
Dennis Yeskey, a senior advisor and head of the CRE practice at AlixPartners, said, ""Of course, commercial real estate fundamentals are still far from good, but I've never seen so much money sitting on the sidelines ready to pounce. For investors and lenders who are able to get their houses in order, from streamlining operating costs to managing capacities, this could finally be a turnaround year.""
The AlixPartners paper, entitled ""_Commercial Real Estate: WhatÃ¢â‚¬â„¢s Ahead?_"":http://viewer.zmags.com/publication/e437a8fc#/e437a8fc/1, identifies three factors that might point to an end to the current CRE gridlock.
First off, the firm says banks are moving to rebuild their tier-one capital reserves. Yeskey explained that with the cheap cost of debt nowadays, lenders are primed to boost capital reserves, and if theyÃ¢â‚¬â„¢re successful theyÃ¢â‚¬â„¢ll have the[COLUMN_BREAK]
funds to cover existing Ã¢â‚¬Å“badÃ¢â‚¬Â CRE loans with the ability to write this debt off. This, in turn, will make it easier to perform real debt restructurings and to sell troubled loans or underlying foreclosed real estate assets to investors, he said.
And secondly, even though over the next 18 months more than $1.5 trillion of debt maturities are coming due, the AlixPartners paper predicts that debt issuances will return, albeit slowly, to the real estate capital markets. The firm says principally, this debt will come from healthy banks in the form of small loans, larger life insurers, selected new mezzanine investors, real estate investment trusts (REITs), specialty finance companies, and some offshore banks and sovereign wealth funds. Yeskey says seller financing, along with more conservative underwriting, will also contribute to a return of debt availability.
Thirdly, AlixPartners expects bid/ask spreads to narrow. Because of factors noted above, the firm says CRE sellers should be in a better position to lower their asking prices on distressed properties. Buyers, in turn, should be able to increase their offer prices, and thereby narrow the huge bid/ask gaps that exist today.
Yeskey added, Ã¢â‚¬Å“WeÃ¢â‚¬â„¢ve all heard of the famous Ã¢â‚¬Ëœwall of debt maturitiesÃ¢â‚¬â„¢ out there about to hit so many industries in the next year or two. Whether real estate investments are crushed by that wall, or whether theyÃ¢â‚¬â„¢re able to turn it into a foundation upon which to reach greater heights, depends on acting now, not later, to get in fighting shape.Ã¢â‚¬Â
AlixPartners LLP is a global business-advisory firm offering comprehensive services to improve corporate performance, execute corporate turnarounds, and provide litigation consulting and forensic accounting services. The firm says its specialty is anticipating, evaluating, and resolving urgent, high-impact business challenges in an increasingly complex economic landscape.