Distressed asset investors are finding their best buying opportunity in decades in the troubled U.S. housing market, as the commercial real estate collapse roils markets.
Private equity firms are already eager to get in on the action: About 64% of the $400 billion the industry has earmarked for real estate investments is earmarked for North America , the highest share in 20 years, according to data compiled by Preqin .
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What worries the rest of the world is that private equity’s strong preference for investing in the United States means that other regions cannot attract the same demand, and their problem loans and distressed real estate assets will take longer to be absorbed.
After the COVID-19 pandemic promoted the work-from-home model, US office prices fell by nearly a quarter last year, a drop greater than in Europe, and private equity firms naturally would not miss this opportunity to pick up bargains. According to data from the Mortgage Bankers Association of the United States, about $1 trillion of commercial real estate-linked bonds will mature in the United States this year, and the default rate is expected to rise as issuers are unable to repay, providing more options for buyers of distressed assets.
“Compared to the savings and loan crisis and 2008, the troubled assets are still in the first or second stage,” said Rebel Cole, a finance professor at Florida Atlantic University and an advisor at Oaktree Capital Management. “The tsunami is coming and the tide is receding from the beach.”
John Brady, head of global real estate at Oaktree Capital, has been blunt in his assessment of what’s ahead. “We may be approaching the most significant real estate distress cycle in 40 years,” he wrote in a recent report on the U.S. “Few asset classes are as unloved as commercial real estate, and we think the bargain hunting opportunities are better here than anywhere else.”
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