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Private Equity Players See Further Price Drops

NEW YORK CITY-Fund managers believe a wave of distressed buying opportunities will start in 2011, not this year, says an E&Y report.

By Paul Bubny | Updated on April 06, 2010

NEW YORK CITY-Fund managers and others in the real estate private equity sector see 2011, not 2010, as the year a “generational buying opportunity” begins to manifest, Ernst & Young says in a report issued Tuesday. That’s because they expect fundamentals, and therefore prices, to continue slipping throughout this year.

“There’s a significant amount of capital that has been accumulated in the distressed sector,” E&Y’s Gary Koster tells GlobeSt.com. “Currently valuations are pretty low peak-to-trough, probably down 25% to 40% from 2007. The problem is that there aren’t an incredible number of sellers at these evaluations.”

With lenders more often than not extending the terms of loans, “Nobody’s forcing the issue,” says Koster, global leader of real estate fund services at E&Y. “The unintended owner has always been a significant contributor to deal-flow in the distressed sector, and we don’t have many unintended owners. That number of foreclosures relative to the debt that’s underwater is a very small ratio.”

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