Since the early days of the coronavirus crisis, distressed real estate investors have been gearing up for the opportunity to scoop up assets at rock-bottom prices.
So far, even in the hard-hit hospitality and retail sectors, deals have been slow to materialize as buyers and sellers continue to wait each other out. Signs of distress in the office and multifamily markets have been rarer still — but that could change.
“Government support for individuals and laws and policies mandating forbearance have helped keep delinquencies down,” wrote Yardi Matrix director of research Paul Fiorilla in a recent bulletin. “Still, multifamily and office owners are facing impediments that could weaken demand at a time when supply is near a cycle peak.”
To identify markets most vulnerable to the long-term impact of the pandemic, the commercial real estate data firm analyzed loan maturities and property performance for millions of multifamily units and square feet of office space in the top 50 U.S. markets.
While few properties are in imminent danger, Yardi Matrix found, “there are pockets of weakness that could eventually produce trouble.”
One such pocket is new and transitional properties, which have construction or bridge loans coming due in the near future while the pandemic is likely to complicate the lease-up process.
On the multifamily side, Los Angeles is the market with the most exposure to such properties, with nearly 3,500 units in properties with occupancy below 60 percent and financing coming due this year.
On the office front, New York City has the largest exposure with over 1.7 million square feet of office space facing 2020 debt maturities with sub-75-percent occupancy.
Another space to watch is Sun Belt markets like Houston, Dallas, Austin and Atlanta, which have attracted development in recent years thanks to demographic shifts — but may now face a problem with oversupply in an economic downturn.
“Properties that started the pandemic in good shape with strong demand drivers are likely to survive, but those with less solid fundamentals may have problems with distress if the recession is longer or deeper than expected,” the report concludes.