Distressed property market at a tipping point
August 3, 2020 | Kasi Johnston | Mortgage Professional America
Evidence of distress in the commercial real estate realm is mounting. U.S. commercial real estate transaction activity plunged in the second quarter as the COVID-19 pandemic continues to cripple deal making. Real Capital Analytics (RCA) reports a 68% drop in transaction volume, the lowest level of a second quarter since the global financial crisis.
“There’s a lot of interest in distressed properties and loans and while they do exist, there’s is still a real disconnect between buyers and sellers on what the price should be for those,” said Carol Faber, partner and co-chair distressed property practice at Akerman Law. “Owners still have a perception that their property is worth more, while opportunistic buyers are just looking for a great deal and aren’t inclined to buy anything until they feel the market has reached that point.”
Faber added that in many respects, it’s still very much a wait and see. Despite a record number of loans going into special servicing and some lenders preparing to proceed with action, many are still trying to work with borrowers who have a possibility of overcoming the situation. As lenders begin to decipher which companies and borrowers have a better chance of making it out of the crisis, and which aren’t, that’s when more activity will kick off in the distressed market. Lenders in many jurisdictions are still not able to foreclose. Faber says when those restrictions end and lenders are able to enforce their rights, it will become more obvious which borrowers will be in a seriously distressed situation, which could result in a drop in pricing.
