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Capital Markets

Distressed commercial real estate debt: Still waiting for the big bargains

The vast market in distressed commercial real estate debt expected at the end of 2008 has yet to materialize not least because banks have been unwilling to offload their holdings. Potential investors are still in line for bargains. Phil Moore reports.

More on real estate debt

As recently as the final quarter of last year, the immediate outlook for investors in commercial real estate debt looked much more promising than it does today. In November, London-based Cairn Capital announced the imminent launch of its first commercial real estate fund, which would seek to take advantage of the "unprecedented opportunities currently being offered in the commercial real estate debt market".

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It is easy to see why Cairn and scores of others were upbeat about the prospects for the real estate debt market. With valuations having nose-dived and banks’ balance sheets in a grievous state of disrepair, the widely held view was that the curtain was about to rise on one of the biggest giveaways debt investors had ever seen. In the fire sale that was about to open, many assumed, commercial real estate debt in various stages of distress would be offered at anything between 10 and 80 cents or pennies on the dollar, euro or pound.

"In September, people were euphoric about the prospects for real estate debt, which was seen at the time as the new Eldorado," says Emmanuel Verhoosel, global head of structured finance at ING Real Estate.

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