PERE FORUM NY: Distressed debt opportunities on the rise

Investment opportunities within the US real estate debt space are increasing, delegates at the PERE Forum: New York heard today.

According to the participants of a panel focused on the current state of investing in distressed real estate debt, the gap between bids and asking prices for such assets is narrowing and this is encouraging more activity.

Craig Solomon, managing principal at Square Mile Capital Management, said: “2011 demonstrated tremendous opportunities for distressed-style investing.”

Fellow panelist William Lindsay, founding partner of PCCP, agreed adding that the opportunity would likely remain for the next two to three years. He said: “Now the good stuff is coming out.”

David Welsh, founding managing principal of Normandy Real Estate Partners, identified the office sector as particularly attractive for looking for distressed debt deals.

The opportunities are on the rise, according to the panelists, in part because the uncertainty within the current economic environment is prompting a sell-off of core assets. “We're seeing more sellers flooding the market with supply,” said Welsh. He added that Normandy has seen a “pullback in pricing over the last few months.”

In support of that point, Lindsay said PCCP was “selling everything we can that looks, sounds or smells like core.”

Moving the focus to Europe, panel moderator Mark Grinis of Ernst & Young asked the panel whether Anglo Irish Bank's recent loan portfolio sale was a sign of more deals coming out of Europe or if it was an anomaly. Welsh responded by describing the sale as just “the tip of the iceberg”.

Solomon, meanwhile, said that, although the AIB deal wouldn't be the start of a flood of similar deals from Europe, the region could expect a “period of sustained activity”. “The off-market pool deal is very hard to find,” Lindsay said, but he added. “We may see more European banks do these.”

Looking forward generally, the panel agreed that opportunities are going to continue, but they underlined the importance of taking a cautious approach. “We like the buying opportunity,” said Welsh on the prospects of 2012. “But we're going to continue to be cautious.”

Lindsay agreed: “We're going to see a steady stream of opportunities over the next couple of years,” but he said: “I don't feel any sense of urgency.”