Mountain of maturing commercial real estate debt creates buying opportunity for value investors

27-Aug-2011

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An eternal optimist, Liu-Yue built two social enterprises to help make the world a better place. Liu-Yue co-founded Oxstones Investment Club a searchable content platform and business tools for knowledge sharing and financial education. Oxstones.com also provides investors with direct access to U.S. commercial real estate opportunities and other alternative investments. In addition, Liu-Yue also co-founded Cute Brands a cause-oriented character brand management and brand licensing company that creates social awareness on global issues and societal challenges through character creations. Prior to his entrepreneurial endeavors, Liu-Yue worked as an Executive Associate at M&T Bank in the Structured Real Estate Finance Group where he worked with senior management on multiple bank-wide risk management projects. He also had a dual role as a commercial banker advising UHNWIs and family offices on investments, credit, and banking needs while focused on residential CRE, infrastructure development, and affordable housing projects. Prior to M&T, he held a number of positions in Latin American equities and bonds investment groups at SBC Warburg Dillon Read (Swiss Bank), OFFITBANK (the wealth management division of Wachovia Bank), and in small cap equities at Steinberg Priest Capital Management (family office). Liu-Yue has an MBA specializing in investment management and strategy from Georgetown University and a Bachelor of Science in Finance and Marketing from Stern School of Business at NYU. He also completed graduate studies in international management at the University of Oxford, Trinity College.







From URDANG report,

The significant amount of maturing mortgage debt attached to commercial real estate is providing an unusual opportunity for institutional investors, according to a recent white paper from URDANG, the real estate specialist for BNY Mellon Asset Management.  

The maturing debt presents an opportunity for investors to acquire properties on attractive terms from sellers who are overleveraged, the report said.

Such acquisitions may give the acquirers the ability to offer properties to renters at lower rates and with more attractive features than comparable properties, according to the report.

“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,” says David Blum (pictured), managing director, portfolio management, at Urdang Capital Management and a 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.”

David Rabin, managing director, private real estate, at Urdang Capital Management, and the other co-author of the report, added, “With banks increasingly willing to sell these properties and with commercial mortgage backed securities (CMBS) delinquencies at an all-time high, we believe there will be increasing opportunities to purchase or recapitalize over-leveraged assets at an attractive cost basis.”

Also contributing to the attractiveness of selectively acquiring commercial real estate is that, aside from a handful high-end properties in top tier US markets, commercial real estate values generally remain well below peaks reached during the period of 2005 to 2007, according to the report. The report attributed 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.”

Those acquiring properties at a lower cost basis can add value to properties even as rental rates are flat or declining, according to the report.  Adding value to low basis properties will be an operational cornerstone of real estate performance over the next several years, the report said.

 

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