Investors are raising capital and shaping strategies as market forces create diverse investment opportunities, ranging from whole loans to mezzanine loans, to CMBS, to equity investments in residential land and property types of all shapes and sizes. The anticipation of the coming opportunities is high, but transaction activity remains low as investors wait for property markets and pricing to adjust further.
From the Current Issue
During the past year, numerous investors and market participants have inquired about the true level of activity in the secondary market and the opportunity to acquire real estate fund and partnership interests through such transactions. The simple answer to their question is that the dislocation, which has impacted the global economy and specifically the real estate sector, has stimulated activity in the real estate secondary market.
At least for this cycle, the heyday of private equity funds seems to be over. Recent market turmoil has led some investors to consider selling their limited partnership interests in the secondary market as a means to limit exposure to future capital calls, adjust their asset allocations, increase liquidity, and reduce the number of manager relationships and the associated administrative expenses.
Commercial property market fundamentals kept declining in second quarter 2009, as the recession continued its negative impact on the industry. Slower production and spending in the greater economy is negatively affecting the commercial real estate market. The institutional property market is correcting and values are falling as fundamentals continue to deteriorate.
“Boy, is it tough out there…” This was the response I received from a good friend who was trying to raise capital for an investment with one of the globe’s leading real estate developers. He had been doing the traditional capital-raising journey from Singapore to Abu Dhabi, then to Amsterdam and finally London. But, unlike in previous years, this trip was with little success.
Deteriorating credit and lack of liquidity in the commercial real estate market poses a threat not only to the industry but also to the economy as a whole. The federal government has introduced several emergency programs aimed at facilitating a market recovery in this sector along with others. The Term Asset-Backed Securities Loan Facility (TALF) is intended to help break the logjam in the CMBS market by providing Federal Reserve financing to buy AAA securities backed by commercial mortgage loans. The Treasury’s Public-Private Investment Program (PPIP) is designed to help banks shore up their balance sheets by selling both securities and loans to funds that have some degree of Treasury and FDIC support.