Real estate: Investors turn crisis into opportunity
Fundraising among private equity firms for distressed real estate and debt investing has grown to record levels.
Real estate worldwide has suffered badly from the global economic downturn. Developers are under attack from a combination of falling property values and a credit freeze that has dramatically narrowed refinancing options. Real estate research firm Real Capital Analytics estimates that about $10 billion of commercial property worldwide has been foreclosed upon, with a further $72 billion in trouble. It comes as no surprise that global real estate sales last year fell 58% to $504 billion. The worst may be yet to come. RCA estimates that about $170 billion of US commercial mortgages are expected to have to refinance this year, compared with $36 billion in Britain and $12.7 billion in Japan. Moody's Investors Service says US commercial property prices are already down 21% from their October 2007 peak. But with more than 40% of the troubled or foreclosed loans reliant on monthly financing from lenders who may themselves be in trouble, that decline looks set to continue.
The other side of the coin, however, is that fundraising among private equity firms for distressed real estate and debt investing has grown to record levels. Private equity real estate funds are hoping to raise $253 billion, of which 37% (or just over $92 billion) is allocated to distressed real estate and debt, according to a report from Preqin, an alternative investments research consultant.