DALLAS-Investment funds focused on distressed assets – so-called “vulture” funds – are having a hard time deploying capital since the bulk of distressed deals are smaller than $5 million.
Al Pontius, senior vice president and managing director of Marcus & Millichap, made the observation during the 2nd Annual RealShare Distressed Assets conference here at The Adolphus Hotel. Produced by ALM-Real Estate Media Group, the conference attracted more than 350 executives who were eager to hear about the current state of the distressed market.
Pontius, who gave a special address titled “Three Years into the Capital Markets Meltdown: Where are we now and where are we going?”, noted that both international and domestic funds have raised billions of dollars to take advantage of distressed assets in the United States. “These funds represent a tremendous amount of investment capital, yet their money is not earmarked for smaller properties,” he pointed out. “They’re looking for larger deals, and those are hard to come by.”
In fact, 82% of all distressed transactions trade for $5 million or less, according to Marcus & Millichap research. The average size for distressed property transactions is just $4.6 million.
During his presentation, Pontius noted the number of distressed asset trades has increased dramatically. Activity increased 80% during the first half of the year compared to the same period in 2009. “This is an accelerating trend,” he said. For example, as much as 40% of property trades in Las Vegas are distressed, he added.
However, Pontius emphasized the fact that the pace of loans entering delinquency has diminished. “We’re way down from the peak,” he pointed out. Specifically, the pace is down 72%.
Although banks account for 60% of maturing loan volume over the next three years and CMBS accounts for less than 20%, Pontius noted that CMBS loans have a higher proportion of delinquent loans – nearly 9% of all CMBS loans are delinquent.
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