More than $300 billion of capital is ready to seize distressed real estate assets and mispriced loans in the US alone, as property prices continue to decline.
A report from Jones Lang LaSalle says private equity real estate and foreign investors have amassed large pools of opportunistic capital to take advantage of distressed markets, not least in the US.
“It may take another three to four quarters for broad-based distress to reach the sales market, but there is no question there is capital waiting to invest in real estate once opportunities arise with an estimated $300 billion targeting US real estate,” said Earl Webb, chief executive officer of Jones Lang LaSalle Capital Markets.
Property owners were struggling to come to terms with 30 percent declines in valuations and weakening fundamentals. However, if cap rates rose above 8 percent for quality properties in 2009 “opportunistic investors will begin to seize these once-in-a-lifetime yield opportunities”, Webb added.
The report said that during the final three months of 2008, a record number of lenders confirmed they were tightening standards for commercial real estate loans. However, Jones Lang LaSalle warned many of the loans underwritten between 2005 and 2007 “contained aggressive rent growth assumptions that will be unsupportable in 2009”.
Lenders said they expected borrowers to have trouble refinancing maturing mortgages in 2009 and 2010, the report continued, “even if the underlying properties are performing well”.
With credit remaining tight, many corporations would look to sale-leaseback credit structures as a means of boosting their liquidity, Jay Koster, managing director of Jones Lang LaSalle’s Corporate Capital Markets practice.
“Enquiries from our corporate clients are up by 300 percent, versus 18 months ago,” Foster said.