As companies struggle to pay down debt, cash-rich investors are snapping up commercial real estate properties that developers are putting on the market at deep discounts, according to the Wall Street Journal.
Many investment firms are looking to buy up properties at discounted prices after piling up cash during the coronavirus pandemic. That includes Ares Management, which is snapping up 3 million square feet of office space with an offer to buy assets related to high-end assets valued at $500 million. Preferred real estate debt, according to WSJ. The commercial real estate industry faces about $2.81 trillion in loans due by 2028, as it struggles with high debt costs due to weak demand and high interest rates. (Related: Americans are more in debt than ever before – and it could get worse)
“We're entering an era where it's great to have dry powder,” Rich Banjo, co-president of Artemis Real Estate Partners, told WSJ. Artemis recently closed a $2.2 billion fund late last year that bought discounted properties.
Private equity firms that run global real estate funds had $544 billion in cash in the second quarter of 2023, up from $457 billion in the fourth quarter of 2022, according to WSJ. Approximately $85.8 billion of commercial real estate was at risk at the end of 2023, up from $56.9 billion at the end of 2022.
Commercial real estate remains a risk in the United States, even after the steepest decline in prices in at least 50 years. Read our blog to learn more about how this increases risk for investors and lenders. https://t.co/18dN2zRBuW pic.twitter.com/7NrZy83ng7
— IMF (@IMFNews) February 4, 2024
Investors are particularly concerned about struggling office building owners as the widespread shift to remote work that began during the coronavirus pandemic has cut into profits and reduced demand for office space, according to WSJ. They say they are paying attention. Investors are also targeting hotel owners who are struggling to keep up with repairs and apartment owners whose construction schedules are falling behind due to supply chain shortages and construction halts caused by the pandemic.
Commercial real estate interest rates are facing upward pressure from the Federal Reserve's hike in the federal funds rate, which is set at a range of 5.25% to 5.50% to combat high inflation. , which is the highest level in 22 years.
The bankruptcy of top developer China Evergrande Group, triggered by a judge in January, could lead to the liquidation of more than $300 billion in debt and cause global real estate prices to fall as the company sells off assets. Rising borrowing costs have reduced the value of office real estate around the world by $1 trillion.
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