Yesterday I had the opportunity to appear on a very
interesting panel at the Bloomberg Commercial Real Estate Conference:
“Investing from the Ashes: The Distressed Market.”
The panel examined the investment outlook and areas of both
risk and opportunity in distressed real estate. Representing the viewpoint of special servicers was Robert Lieber of C-III Capital, while Billy Macklowe offered the owner’s perspective, focused particularly in New York City.
As was mentioned on the panel, right now the outlook for
distress is a mixed bag: We’re at a four-year low for new distress, but there
are signs that 2013 volume will increase. CMBS loans remain the largest share
of outstanding distress, and there’s another major wave of delinquency in the
future as the 10-year loans from 2005-7 mature.
We see the next generation of opportunity is in secondary
markets, where population growth and fundamentals (housing, job growth, etc.)
are starting to rebound. In some cases like Tampa and Memphis, these markets
are early beneficiaries of the shift in global trade patterns and changes in
our logistics network in anticipation of the 2015 Panama Canal expansion. We
also see industrial property as a stable asset class, with the least exposure
from CMBS distress.
From our perspective, the greatest market risk is from
interest rate sensitivity. A rise of 200 basis points in interest rates over
the next two years—below the long-term trend—could, by our estimation, potentially
add 20 to 25 percent new distress to the market. The hope, of course, is that
interest rates would be rising in response to other positives in the economy as
a whole, but it’s nonetheless a major risk for investors in the distressed
space.
I very much enjoyed the opportunity to participate, and hear
the perspectives of our peers in the market. Thanks to Beth Jinks and Bloomberg
News for making it possible.
Here is a link to the video: http://bloom.bg/PShonm
Here is a link to the video: http://bloom.bg/PShonm