The majority of US real estate deals will deliver just low double digit returns, amid warnings a depressed jobs market will significantly impact the country’s property market.
Writing a white paper on the issue, Mark Antoncic, managing director of debt investment firm Trilyn, said that with demand fundamentals set to remain week for the foreseeable future, real estate investors could not expect a repeat of the outsized performance seen in 2006 and 2007.
“The rapid appreciation driven by cap rate compression and fuelled by ample cheap credit are over and lacklustre US jobs creation and compensation trends should further sober investors across all asset categories, including stocks and bonds.“
“We’re moving through a phase of recognising legacy losses and reorientating to a new market cycle offering investors the chance to make up ground gradually in an elongated recovery dictated by a plodding economy,” he said.
Opportunistic investors frustrated by the dearth of distressed deals could, however, be rewarded for patience, with Antoncic stressing there was plenty of time for lenders and government regulators to “disgorge what will be mounting real estate owned portfolios and to recapitalise teetering borrowers unable to refinance maturing loans”.
In targeting good quality loan-to-own deals, mired on bad balance sheets, Antoncic said “B minus and C properties in off locations” should be avoided. “Many of these lesser-grade properties will be bulldozed, redeveloped or refashioned into new uses, or gather dust.”
The state of the US economy today, though, should “give pause” to investors thinking real estate markets could “recapture what proved totally unsustainable – 20 percent-plus returns, except on well-timed one-off deals. Whether in Asia, Europe or in North America we see economies struggle to gain traction and cope with worldwide deleveraging.
“In this market nothing will come easy or quickly.”