Lenders will write down loans by less than 30%

Real estate investors were warned against hoping for deeply discounted debt deals in the US with lenders expected to write down loans by no more than 30 percent.

An annual survey of senior property executives by law firm DLA Piper revealed that a majority of those questioned believed the largest write offs by lenders over the next 12 months would range from 11 percent to 30 percent of the loan.

Just under 30 percent of the 308 people questioned said the largest write downs for an individual, non-recourse commercial loan, worth more than $10 million, would be between 11 percent and 20 percent.

Just under 30 percent of the 308 people questioned said the largest write downs for an individual, non-recourse commercial loan, worth more than $10 million, would be between 11 percent and 20 percent. Another 31 percent said the write offs would be between 21 percent and 30 percent. Only eight percent of the 308 people questioned expected discounts to eclipse 50 percent.

This comes in marked contrast to the optimistic outlook of many of those surveyed, with almost 40 percent of respondents describing themselves as “bullish” – up from just 10 percent in September 2008, when DLA last questioned executives for its State of the Market Survey.

Just under two-thirds of people said the US real estate markets were at or near bottom, with 25 percent saying markets had already hit bottom and another 35 percent expecting markets to trough this year. More than 10 percent, though, argued it would take until at least 2012, and beyond, to reach bottom.

Over the next six to 12 months, 65 percent of executives expect little to no significant change in cap rates.

Reflecting the amount of capital waiting on the sidelines, a majority of survey respondents agreed private equity, hedge funds and REITs would be the most active investors in the US in the coming year, with 37 percent of those questioned saying private equity and hedge funds would be the most active followed by 29 percent backing REITs. Foreign investors came in the third most active group with 20 percent.