Tech and healthcare top investor preferences
“Choose your sectors carefully” is one message arising from Adams Street Partners’ 2023 Global Investor Survey.

It found that 63 percent of investors strongly agreed that sector expertise was critical to private equity performance, up 14 percent on the response in last year’s equivalent survey. Technology and healthcare were cited as offering the best investment opportunities in private markets this year by 40 percent, ahead of impact/ESG and venture capital (both 33 percent).

There is near unanimity on the likely outperformance of private markets over public markets, with 86 percent tipping the former to do better than the latter. The biggest challenges are perceived to be rising interest rates/inflation (55 percent), market volatility (46 percent) and geopolitical tensions (29 percent).

More than half (58 percent) said they expected inflation to have a high impact on their private markets investment strategy in 2023.

The survey found ESG is seen as less of an investment challenge this year (22 percent, down from 29 percent). It’s not clear whether this is because fund managers have got more on top of the issue, or it has moved down investors’ priority lists.

CMBS delinquency rate rose 18 points in February
The overall US CMBS delinquency rate rose 18 basis points in February, reaching 3.12 percent, the largest monthly increase since December 2021, according to research from Trepp, a commercial real estate data provider.

The all-time-high delinquency rate was recorded in July 2012, at 10.34 percent.

The last three years of delinquencies have been defined by the pandemic and its aftermath. June 2020 saw delinquencies soar. Since then, the largest monthly rise was that of December 2021 with an increase of 19 bps. The pace of delinquencies  fell in early 2022, stayed level through the middle of the year and rose only modestly in the final months. In year-over-year terms, the US CMBS delinquency rate is down 75bps from February 2022.

Trepp says there have been expectations since June 2022 that, in the light of Federal Reserve policy and recession fears, delinquencies were about to move sharply upwards. But for a period, rates defied such expectations, increasing only modestly in the second half of the year. That defiance ended last month.

Breaking the February statistics down by property class: the largest jump was in office delinquency rate (55bps, to 2.38 percent), followed by retail, which rose 17bps to 6.75 percent. Meanwhile, the industrial delinquency rate was unchanged at 0.40 percent and the lodging rate rose, but by only 1bps to 4.45 percent.

Blackstone’s default
Events last week demonstrated how even the biggest names in the real estate industry are susceptible to the challenges posed by loan maturities in the current market, reports affiliate title Real Estate Capital Europe.

On 2 March, loan servicer Mount Street transferred into special servicing a defaulted loan, which is securitised in the FROSN-2018 DAC commercial mortgage-backed securities issuance, and financed properties from Blackstone’s Sponda platform in Finland. It followed two weeks of talks between Blackstone and Mount Street after CMBS noteholders denied the borrower a one-year loan extension. The full story can be read here.

While the details of the two-week talks are confidential, Mount Street said in its announcement that “further proposals” from both sides had been explored. A Blackstone spokesperson expressed disappointment that Mount Street had not agreed to its proposal. A conclusion is yet to be reached.

More borrowers are expected to face difficulty repaying loans at maturity. In most cases, borrowers and lenders will negotiate outcomes directly. In this case, the fact the loan is in a CMBS put its fate into the hands of bondholders, and now a loan servicer. The situation shows not all refinancing issues will be straightforward to resolve.

Essentials