What distress? Dry powder piles up with few discounts in sight
Private equity funds have $250B to spend on commercial real estate loans
After raising billions of dollars to spend on commercial real estate, distress investors are having a difficult time spending it.
Despite projections of massive discounts in real estate prices, few have arisen. Banks have yet to write down loans and commercial property owners have had little incentive to sell.
These factors, along with generous stimulus packages from the federal government, have led some investors “to push prices up and their yields down in order to simply deploy capital,” according to Will Sledge, senior managing director at JLL, Bloomberg News reported.
Put another way, a lot of money was chasing a paucity of opportunities, creating a supply-and-demand dynamic that sustained pricing.
U.S. private equity funds had more than $250 billion to spend on commercial real estate loans as of March 23, according to Preqin, the news service reported. About $76 billion of that was earmarked for distressed debt.
Still, investment funds are continuing to raise money or close on existing funds for real estate opportunities. Cerberus Capital Management closed a $2.8 billion opportunistic real estate fund Monday, surpassing its $2 billion target. Meanwhile, Oaktree Capital Management said it raised $4.7 billion for a real estate opportunities fund, exceeding its $3.5 billion goal.
This comes as 30 percent of institutional investors are targeting distressed and opportunistic commercial real estate deals this year, according to a survey by CBRE.
Investors might have to wait a while to see returns, if they ever do. JLL looked at $24 billion in potential debt deals last year, but only about $1.4 billion came to market, according to Sledge.
[Bloomberg News] — Keith Larsen