Jones Lang LaSalle evaluated $24 billion in potential debt deals last year, and only about $1.4 billion came to market, according to Sledge. Distressed debt pools have traded in a range of 85 cents to 95 cents on the dollar, he said.
Yaakov Zar, chief executive officer of Lev, a matchmaker for commercial real estate borrowers and lenders, got a call from a friend offering 100 cents on the dollar for loans in default.
“If you’re paying par, it’s not distressed,” Zar said. “Even in a situation where everything was falling into default, there’s still too much dry powder.”
There will still be distressed opportunities as some building owners struggle to refinance or decide to stop investing in money-losing projects. And some properties, such as malls, face longer-term consumer shifts that will be difficult to overcome. But a post-Covid distress tsunami isn’t in the cards, said Brian Stoffers, global president for debt at CBRE.
“Those that anticipated the big hits are going to be sorely disappointed,” Stoffers said.
Ticking Clock
For distressed-fund managers, the clock is ticking. Most closed-end funds have two or three years to call the money they’ve raised or lose the right to put it to work. Not all can wait that long to meet payrolls and other expenses.
Stockdale Capital Partners has until December 2022 to deploy a $550 million fund it closed in February of last year, according to Dan Michaels, managing director of the Los Angeles-based private equity real estate firm, which focuses on distressed opportunities in the U.S. Southwest. It might have to ask investors for an extension.
“You look at 1,000 deals,” Michaels said, “Find a 100 you like. Work on 10. Close on one.”
With few deals coming to market, fund managers are turning to more obscure corners for opportunities. One potential source is banks that want to clean up their balance sheets to be attractive for mergers, said Pat Jackson, CEO of Sabal Capital Partners in Irvine, California, which has originated $4 billion in real estate loans.
Sabal has been in talks with a regional lender since December about purchasing a multihundred-million-dollar debt portfolio while the bank prepares for an acquisition. The challenge is making an offer that pleases the seller while leaving room for Sabal to profit, Jackson said.
“You bid on a deal and it’s ‘Congrats! You won!” Jackson said. “And then you think: Did I pay too much?”
-With assistance from Natalie Wong.
This article was provided by Bloomberg News.