The significant amount of maturing commercial mortgage debt is providing an unusual opportunity for institutional investors to acquire properties on attractive terms from over-leveraged sellers, according to a recent report from URDANG, a BNY Mellon company.
Such acquisitions may give the buyers the ability to offer properties to renters at lower rates and with more attractive features than comparable properties, the report says.
‘The ability to acquire these properties at attractive costs is possible because of the significant amount of commercial real estate debt that is scheduled to mature over the next four years,’ explains David Blum, URDANG's managing director of portfolio management and co-author of the report. ‘Many of these properties have experienced deferred capital expenditures, which will require owners to invest additional equity or dispose of their assets.’
Also contributing to the attractiveness of selectively acquiring commercial real estate is that, aside from a handful of high-end properties in top-tier U.S. markets, commercial real estate values generally remain well below their 2005-2007 peaks. The report attributes this drag on commercial real estate to the downward pull exerted by sales of distressed properties.
‘This drop in values has put many otherwise healthy properties in a position where they will require infusions of additional equity so maturing mortgages can be refinanced,’ says Blum. ‘This gives new investors the opportunity to have a lower cost basis than those who bought similar properties a few years ago, providing them with the ability to offer lower rental rates than comparable properties with greater debt burdens.’
