Strait-bound investors are viewing the U.S. commercial real estate sector as a bargain utopia after office prices plummeted last year as the COVID-19 pandemic led to a shift to working from home.
Private equity firms are targeting this sector, with 64% of all money earmarked for commercial real estate investments going to office buildings in North America, according to data compiled by Preqin, Bloomberg reported.
Related article: Goldman Sachs: The worst may be over for commercial real estate market, but 'it will likely take longer to turn around'
About $1 trillion in commercial real estate debt is coming due in the U.S. this year, according to the Mortgage Bankers Association, and buyers of distressed assets are ready to buy office space at deep discounts from borrowers who are facing rising defaults due to unprecedented occupancy declines.
The bargain opportunity for commercial real estate in the U.S. is being driven by lenders pulling out of commercial property amid rising borrowing costs and plummeting prices. Asset manager PGIM estimates there is a roughly $150 billion gap between the amount of loans coming due this year and the amount of new loans available, Bloomberg reported.
“We may be on the brink of the most significant real estate distress cycle in the last 40 years,” John Brady, global head of real estate at Oaktree, said in a recent note. “We believe there are few asset classes more unpopular than commercial real estate, and therefore few better places to find great bargains.”
Price Trends: Commercial real estate companies and exchange-traded funds were on the rise on Wednesday.
Kilroy Realty Corporation (NYSE:KRC) rose 0.72% to close at $32.30 on Wednesday, while American Tower Corporation (NYSE:AMT) rose 0.41% to $196.77 and Prologis Inc. (NYSE:PLD) rose 1.83% to $116.54.
The Invesco S&P 500 Equal Weight Real Estate ETF (NYSE:EWRE) rose 0.78% to $116.54, the iShares Cohen & Steers REIT ETF (BATS:ICF) rose 0.72% to $57.68 and the iShares Core US REIT ETF (NYSE:USRT) rose 0.82% to $54.02.
Read now:
First Foundation shares plummet after $228M fundraise: Regional bank has big exposure to commercial real estate
Photo: Unsplash