US real estate could 'snap' back to life late 2010

The window of opportunity for real estate investors will be short, as the gridlock facing property markets across the US starts to loosen this year.

Real estate investors in the US have been urged to quickly get their houses in order if they want to take advantage of distress in the market.

Despite weak fundamentals for commercial real estate, AlixPartners’ Dennis Yeskey has warned markets across the US could experience a “snapback” as equity investors seek to invest their capital, debt financing returns to the market and banks start to restructure bad loans.

The window of opportunity will probably be small and a snapback in commercial real estate could begin by late 2010.

AlixPartners’ Dennis Yeskey

In the Southfield, Michigan-based restructuring firm’s first quarter outlook report, Yeskey rejects fears banks will continue to extend troubled legacy loans for the foreseeable future, arguing higher bank profitability would help institutions rebuild their Tier One capital reserves giving them the ability to write-off bad assets.

“This, in turn, will make it easier to perform real debt restructurings and to sell bad loans or underlying foreclosed real estate assets to investors,” he said.

Coupled with the “wall of equity” currently “burning a hole in the pockets of private equity investors, institutional investors, REITs and high-net-worth family funds”, and a return of the debt markets, bid-ask spreads for US commercial real estate would narrow, boosting transaction volumes.

As a result, “the window of opportunity will probably be small and a snapback in commercial real estate could begin by late 2010”, Yeskey said, adding this advice to investors: “Be cautious, but be ready.

“Investors need to prepare now for the buy-side opportunities to come by having their own houses in
order and by identifying and working with banks that are ready and able to work with them. Preparation must start now for those who want to take advantage of the deals that surface as we move forward.”

Yeskey was hired by AlixPartners in July 2009 to build the firm’s real estate practice, after a 35-year career building three real estate platforms at Deloitte and Kenneth Leventhal. Among the clients AlixPartners is advising are Dubai World and US REIT General Growth Properties.