The US could be “awash” in opportunities over the next few years as hundreds of billions of dollars of commercial real estate debt matures.
After suffering slow growth in transaction volume for much of 2009 and parts of 2010, the US experienced an “explosive” surge in property sales and acquisitions in the fourth quarter, delegates attending the winter conference of the Association of Foreign Investors in Real Estate (AFIRE) heard. However, that volume could be eclipsed even further as commercial mortgages financed at the height of the market start to mature, with opportunities in secondary markets expected to rise dramatically.
Delegates attending the conference in New York today were told that the US remained the prime investment location for investors, with New York and Washington DC at the top of the list of target cities.
Bob White, founder of data provider Real Capital Analytics, stressed that the amount of capital chasing deals in the US' core cities was significant, helping drive cap rates down to close to their peaks. “There is a risk the capital is out in front of the fundamentals, and [investors] are banking too much on an economic recovery and rental growth over the near term,” he said. “They could be in a situation like London, which, while trends haven't turned negative [in 2010], is definitely in a pause.”
White was joined by Brad Case, vice president of research at the National Association of Real Estate Investment Trusts, who said there were “tremendous opportunities to under-pay for assets and tremendous opportunities to over-pay for assets. It's not a market not to be buyer in; it's a matter of not being the one who blows it by over-paying.”
Case noted that debt maturities would be the real driver of transaction volume between 2011 and 2014, not least in secondary and tertiary markets. “I think we are going to be awash in opportunities like that,” he said when asked about debt maturities. “Distressed sales are going to be a major part of the story in the next two to three years.”