Cash buyers come for distressed commercial properties
RXR, Artemis, SL Green among those deploying dry powder, rescue capital
Having money readily available is proving critical for investors circling distress in commercial real estate.
Investors who stockpiled distressed funds and cash collections since the start of the pandemic are acquiring properties at discounts or providing rescue capital to owners for preferred returns, taking advantage of a high interest rate cycle, the Wall Street Journal reported.
Regional banks are pulling back from lending, tightening their belts at the behest of regulators. Where banks once worked with borrowers on extending or modifying loans, owners need alternatives.
As of last year’s second quarter, global real estate funds operated by private equity firms had $544 billion in cash, according to Preqin. That was a record level, according to the data firm, marking the rise of opportunistic funds targeting distress opportunities.
RXR recently teamed up with Ares Management to buy discounted interests in 3 million square feet of offices. They’ve also made offers to snap up more than $500 million worth of senior debt.
Artemis Real Estate Partners has been making moves, thanks to a $2.2 billion fund it closed last year. Noble Investment Group has purchased 25 hotels with a $1 billion fund it raised. SL Green is also on the prowl, planning a $1 billion opportunistic debt fund to be deployed in New York City.
Investors have been anticipating this moment. Goldman Sachs, Cohen & Steers, EQT Exeter and BGO are among the major firms raising funds to acquire distressed properties, ready to move on a market where plummeting values create long-term opportunities.
The United States notched nearly $86 billion worth of commercial distress at the end of last year, according to MSCI Real Assets. That represented the highest quarterly total in more than a decade. More distress is coming, as there are more than $2.2 trillion worth of commercial mortgages maturing by the end of 2027, according to Trepp.
— Holden Walter-Warner