Distressed Investors See 'Exceptional Bargains' In Troubled US Commercial Real Estate Sector
Distressed investors are viewing the U.S. commercial real estate industry as a utopia of great deals after the COVID-19 pandemic work-from-home shift caused office values to plummet last year.
Private equity firms are putting this sector in their crosshairs as they set aside 64% of dry powder earmarked for commercial property investment toward office buildings in North America, according to data compiled by Preqin, Bloomberg reported.
Almost $1 trillion of commercial real-estate debt will mature this year in the U.S., according to the Mortgage Bankers Association, and buyers of distressed assets are ready to buy office space at great discounts from borrowers facing rising defaults due to an unprecedented downturn in occupancy.
The opportunity in the U.S. for commercial real estate bargains is driven by lenders pulling away from commercial real estate after borrowing costs rose and values plunged. Asset manager PGIM estimates a gap of almost $150 billion between the volume of loans coming due and new credit availability this year, Bloomberg reported.
"We could be on the precipice of one of the most significant real estate distressed investment cycles of the last 40 years," John Brady, global head of real estate at Oaktree, said in a recent note. "Few asset classes are as unloved as commercial real estate and thus we believe there are few better places to find exceptional bargains."
Price Action: Commercial real-estate companies and exchange-traded funds trended upward on Wednesday.
Kilroy Realty Corp (NYSE:KRC) gained 0.72% to close at $32.30 on Wednesday, while American Tower Corp. (NYSE:AMT) picked up 0.41% to come in at $196.77 and Prologis Inc (NYSE:PLD) jumped 1.83% to $116.54.
Invesco S&P 500 Equal Weight Real Estate ETF (NYSE:EWRE) picked up 0.78% to $116.54, while iShares Cohen & Steers REIT ETF (BATS:ICF) edged 0.72% to $57.68 and iShares Core U.S. REIT ETF (NYSE:USRT) gained 0.82% to $54.02.
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