Source: Real Capital Analytics
As delinquent mortgages mount and most investors remain perched on the sidelines in anticipation of an avalanche of distressed assets, will 2010 end up being remembered as the year of the stabilized deal?
Banks and special servicers alike continue to play the waiting game and extend loan maturities for as long as 12 months at a time. Meanwhile, core assets such as One Main Place in Portland, Oregon, sold by RREEF, and Pierre Laclede Center in Clayton, Missouri, sold by BPG Properties, remain a couple of the only deals which have traded this year. In both instances, these sales included properties which were 95% occupied and owned by well-capitalized, institutional owners.
Instead of distressed situations motivating a sale, these owners continue to execute their business plan if the property is at the end of its holding period and is well positioned to be sold.
An example of this strategy is 303 Second Street in San Francisco. This property is currently listed with Eastdil Secured and is expected to command price of as much as $220 million. In an article in the San Fransisco Business Times, Justin Hildebrandt, V.P. with the owner’s advisor Kennedy Associates, stated, “We feel there is an opportunity. There is core capital in the market and there is a lack of quality core properties for sale. We have executed on the business plan. It’s 90 percent leased with limited rollover, and we have completed 550,000 square feet of leasing in the last five years.”
This strategy continues to confuse many buyers…
Dan Fasulo, managing director of institutional investment advisory firm Real Capital Analytics, said the lack of distressed assets hitting the market is creating “mass confusion.” “Not a day goes by when I don’t get a call from an investor client asking ‘where are all the distressed opportunities?’” said Fasulo.
Fasulo said the market is divided between bond-like properties like 333 Market St, with a stable long-term tenant and a lease that extends into 2026 and very few quality distressed properties.
“If you can believe it, we are seeing cap rates coming down for those types of assets where there is safe income locked in over a number of years,” said Fasulo. “For assets with any type of near-term exposure to underlying leasing markets we’re seeing massive discounts — if they are even selling at all.”
Fasulo said that the best distressed assets are not coming to market. Instead, the deals are being restructured with existing stakeholders, sold off-market or being warehoused by the lender until prices rebound.
“The guy who raised the money to buy prime San Francisco assets at a 10 cap is starting to panic right now because he or she doesn’t know if the opportunity they expected is ever going to come to fruition, and I would argue it is not,” said Fasulo. “You either jump in or give the money back.”
“You meet with the big money guys and get the same answer — they are as confused as anybody and still waiting to put their money out,” he said.
Then there is the FDIC. In a recent interview on CNBC, Barry Sternlicht stated that he views the FDIC as “the only real seller in the market” since they are really the only active market participant who is willing to sell at a market clearing price.
But it appears they prefer to sell the underlying mortgages of delinquent properties, rather than foreclosing on them and selling properties fee-simple (i.e. packaged debt deals with Colony Capital, Lennar and Starwood).
What is the reason for distressed asset transaction volume moving at such a snail’s pace?
One answer could be that the bid-ask price discrepancy is lower within the stabilized asset category, but remains all but insurmountable within the distressed asset segment. Another could simply be that the banks, special servicers and FDIC have elected not to dump distressed assets and hold on to their “hope certificate” for a little while longer.
Whatever it is, buyers continue to eagerly await with low-ball offers in hand.
2010: The Year of the Stabilized Deal?
Source: Real Capital Analytics
Banks and special servicers alike continue to play the waiting game and extend loan maturities for as long as 12 months at a time. Meanwhile, core assets such as One Main Place in Portland, Oregon, sold by RREEF, and Pierre Laclede Center in Clayton, Missouri, sold by BPG Properties, remain a couple of the only deals which have traded this year. In both instances, these sales included properties which were 95% occupied and owned by well-capitalized, institutional owners.
Instead of distressed situations motivating a sale, these owners continue to execute their business plan if the property is at the end of its holding period and is well positioned to be sold.
An example of this strategy is 303 Second Street in San Francisco. This property is currently listed with Eastdil Secured and is expected to command price of as much as $220 million. In an article in the San Fransisco Business Times, Justin Hildebrandt, V.P. with the owner’s advisor Kennedy Associates, stated, “We feel there is an opportunity. There is core capital in the market and there is a lack of quality core properties for sale. We have executed on the business plan. It’s 90 percent leased with limited rollover, and we have completed 550,000 square feet of leasing in the last five years.”
This strategy continues to confuse many buyers…
Then there is the FDIC. In a recent interview on CNBC, Barry Sternlicht stated that he views the FDIC as “the only real seller in the market” since they are really the only active market participant who is willing to sell at a market clearing price.
But it appears they prefer to sell the underlying mortgages of delinquent properties, rather than foreclosing on them and selling properties fee-simple (i.e. packaged debt deals with Colony Capital, Lennar and Starwood).
What is the reason for distressed asset transaction volume moving at such a snail’s pace?
One answer could be that the bid-ask price discrepancy is lower within the stabilized asset category, but remains all but insurmountable within the distressed asset segment. Another could simply be that the banks, special servicers and FDIC have elected not to dump distressed assets and hold on to their “hope certificate” for a little while longer.
Whatever it is, buyers continue to eagerly await with low-ball offers in hand.