Back in the sweet spot
Real estate has gone to the head of the class as far as investors in distressed assets are concerned. Forty-one percent of respondents to the fifth annual North American Distressed Debt Market Outlook Survey say they believe real estate represents the best sector for opportunities this year. That's more than any other sector, and represents a sharp rise from the survey released a year earlier, when only 19 percent of respondents allocated investment to commercial and residential real estate opportunities.
At least part of the explanation for the rise in real estate's standing in the 2010 survey is pretty obvious, thinks Mission Capital Advisors' David Tobin: the outlook today compared to a year ago, when the collapse of Lehman Brothers was fresh in everyone's minds. "Looking back into the fourth quarter of 2008, it looked very ugly," Tobin says. "At the same time, prices on fixed-income assets, meaning CMBS and RMBS, were in free-fall. Nobody could predict the bottom, and all they could see was the giant explosion back in September ‘08."
Today, says the Mission Capital principal, "we're in a lower interest rate environment than we were. There seems to be a lot more liquidity in the system, and spreads for riskier assets have tightened dramatically compared to a year ago." Tobin adds that there's "a little more visibility on the horizon with regard to job losses or growth, vacancy increases or declines and economic activity."
Even so, Tobin doesn't think we've found a bottom yet, although "certain assets have." That view is shared by Ron Greenspan at FTI Consulting, one of the firms which commissioned the survey from Debtwire. "Commercial real estate and much of the debt attached to it have fallen in value to the point of being tempting for value players and
