Pricing gap stalls distressed asset investors, for now

Sellers now only willing to concede 5% discount on pricing; buyers want 20%

National /
May.May 19, 2020 09:22 AM
“Far fewer active buyers, far fewer deals, an increase of deals falling out of contract.” Distressed asset investors are still waiting for their “opportunity of the century” to materialize. (Credit: iStock)

“Far fewer active buyers, far fewer deals, an increase of deals falling out of contract.” Distressed asset investors are still waiting for their “opportunity of the century” to materialize. (Credit: iStock)

Distressed asset investors might have to wait a bit longer for their “opportunity of the century,” as the coronavirus pandemic has slowed deal-making while the pricing gap between buyers and sellers remains large.

While sellers are currently ready to concede about 5 percent on pricing, buyers are expecting cuts of as much as 20 percent, according to Bloomberg. This has made deals hard to come by, all while private equity firms worldwide are sitting on $328 billion in dry powder for real estate investment according to Preqin.

“The physical restrictions taking place are mostly preventing new deals from happening,” Real Capital Analytics’ Tom Leahy told Bloomberg. “Far fewer active buyers, far fewer deals, an increase of deals falling out of contract — those are the preludes to seeing prices fall when the market does come back.”

Real estate transaction volume in Europe fell 65 percent year-over-year in April, with the U.S. and Asia seeing similarly large drops. CBRE expects deal volume in the Americas to fall by about 35 percent this year, while the Asian market — which has already begun reopening somewhat — is expected to see a 25-percent decline.

In recent earnings calls, executives at Blackstone and Brookfield Asset Management indicated that their firms were beginning to see opportunities to invest in distressed assets. Other distressed real estate funds have also been raising funds at unprecedented rates.

But the expectation of better deals to come means investors aren’t jumping just yet. “If I’m going to have vintage May 2020 on my books, I want to be able to demonstrate to my investors that I got an exceptionally good deal,” Rclco Real Estate Advisors managing director Charles Hewlett said. [Bloomberg] — Kevin Sun


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