By Billy the Broker (I just want to stay anonymous)
Commercial real estate has always been a game of patience, but lately, it’s feeling more like a waiting room. With a whopping $270.6 billion poised on the sidelines for North American real estate, according to Preqin, you’d think deals would be flying off the shelves. But instead, a hush has fallen over the market. Why? Because everyone’s eyes are on the $1.9 trillion pot of commercial real estate loans set to mature within the next four years.
Distress is Calling, Will You Answer?
Despite obvious signs of distress, the storm hasn’t fully arrived. Borrowers and lenders are dancing around, extending, modifying, and restructuring loans wherever they can. But it’s only a matter of time before the music stops. As properties’ debt matures, decisions will have to be made. Investors, ideally, would like to wait it out, but if occupancy dips too low and the debt service isn’t covered, that’s when the drama starts.
The Price is… Still Too High?
Even with distress signals flashing, property trading is lagging. Why? The price tag. The real estate investment volume dipped by 60 percent YoY in Q2. Buyers, while plentiful, are playing the waiting game, anticipating further drops in property values. Many are looking to assume existing loans with deliciously low interest rates from yesteryears.
Meanwhile, the new age of real estate shopping is upon us. With digital platforms offering insights into property sales, the market is a veritable buffet of information. But with such accessibility comes competition. And the increased carrying costs of these distressed properties? Just another reason for lenders to want to offload them quickly.
Who Wants to Play Auctioneer?
Even though properties are in distress, don’t expect a Black Friday kind of sale. Instead, prospective buyers might find themselves amidst the buzz and excitement of an auction. Want that distressed property? Well, roll up your sleeves and prepare to bid your heart out.
A Close Eye on Office Spaces and Hotels
While all commercial real estate market sectors are under scrutiny, offices and hotels are drawing particular attention. As companies restructure, many are leaving grand old buildings for swankier, more efficient spaces. And hotels? Let’s just say that after being buffeted by the COVID-19 storm, many are still picking up the pieces. They’re juggling the need for refinancing with maintenance requirements that can no longer be ignored.
The Road Ahead
So, where does that leave the industry? On the edge of its seat, it seems. As more distressed real estate deals emerge, it’s likely to be a race to grab the best deals. And with the digital age making property auctions more transparent, those looking for a steal will need more than just deep pockets. They’ll need tenacity, strategy, and perhaps a good auctioneer’s gavel.
In short, if you’re in the market for commercial real estate, don your battle gear. The waiting game might soon turn into a mad dash. And remember: in this game, it’s not just about having the money – it’s about having the mettle.
