Key Highlights

  • Buyers getting “significant” discounts for malls, hotels, rental apartments and student housing
  • Buyout firms expecting to be “richly rewarded”

Global Buyout Firms Putting Billions of Unspent Cash into Real Estate Funds

The Blackstone Group, KKR & Co., Lone Star and other private equity giants with cash-rich coffers have been waiting to pounce.  According to Real Capital Analytics, a commercial property data firm, the COVID lockdowns pushed some $146B of commercial real estate into serious distress, risk of bankruptcy or default at the end of 2020.

Real Estate Pipelines Filling to be Ready for Reopening Economies

Bill Benjamin, head of real estate at Ares Management Corp.,told Bloomberg,“We are increasingly seeing owners who are losing interest, losing money or losing hope, and are now considering transacting.  There will be some very exciting cyclical opportunities to buy assets at deep values.”

With interest rates so low as to be considered almost negligible, buyout firms are hoping to be rewarded richly when they resell assets such as hotels, apartment buildings and malls to pension funds that are also looking for their income stream yields.

Private Equity Firms Underpinned by Pension Funds and Insurance Companies’ Real Estate Holdings

In an annual survey of 212 institutions managing $412.6T conducted by Cornell University and Hodes Weill & Associates, pension funds and insurance companies allocated 10.6% of their respective investment funds to real estate assets.  Research indicates that 2021 investment allocations will be higher.

No Fire Sales So Far

Central banks worldwide as well as state governments have consciously held off fire sales by taking conservative approaches to borrowing by real estate investors.  These conservative approaches have thus far held off fire sales.

The result up until now has been that buyout firms have looked to publicly traded property companies after their share prices plummeted early on in the pandemic.  For example, Hammerson Plc, the largest retail-focused listed landlord in the UK, has seen its share prices trade at some 95% of the reported value of its net assets.

Attention Now Turning to Government Supported and Bank Forbearance Assets

Keith Breslauer, founder of London-based Patron Capital Advisers LLP, said, “There is a lot of money on the sidelines looking for yield and you have a market that will rebound quite considerably…Banks have basically deferred decisions until the third quarter of this year…then we’ll know where we stand.”

“Eye-Popping” Declines in US Malls

According to data compiled by Bloomberg, US mall values plummeted an average of -60% after appraisals in late 2020.  Some $4B in value was simply erased from 118 retail-anchored properties.

According to Floris van Dijkum, a real estate analyst with Compass Point Research & Trading, only 50% of the US’s 1,100 indoor malls have a good chance to survive.  Van Dijkum said, “By value, 80% is in the top 300 malls.”

Bloomberg noted, “The biggest owners…have started to triage properties, walking away from money-losers while reinvesting in viable locations.”


Thanks to Bloomberg

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