Don’t Believe the Hype

Don’t Believe the Hype
Nicholas A. Dunlap, CPM

For as much speculation as there has been on the looming Commercial Real Estate bust, the opportunities to acquire distressed assets in the Southern California area are minimal at best. What’s more, the fundamentals are now comprised of flat rents (somewhat stable in comparison to 2008 & 2009), (even) lower interest rates and increasing capitalization rates that suggest this should be a great time to buy. Of course, that is, if there were any quality product available. An article in today’s Dow Jones Newswire suggested that many opportunity funds seeking to acquire distressed assets have been disappointed in their efforts. Lenders are not forcing borrowers into foreclosure and as a result, efforts are being made to either restructure debt or unload individual assets through what is known as a 363 sale as opposed to a good old Chapter 11 Bankruptcy filing where assets and portfolios are unloaded.

This is right in line with what we see on a daily basis. Typically, distressed assets of various product types appear by way of Broker or Receiver and then there are a procession of offers and the investment opportunity disappears. We see these opportunities in the Inland Empire, various markets in Arizona and Texas and across the mid-west on a frequent basis, though rarely in prime Southern California markets such as Los Angeles or Orange County. When true value appears in areas such as Orange or Los Angeles counties, it is almost as though there is a clash of the titans amongst the real estate elite and yet similarly, the opportunity quickly disappears. By no means are there an abundance of opportunities for investors. Right now, it takes personal relationships, perfect timing and cash-in-hand to make it happen.