There’s a $190B real estate investment opportunity in the works.
According to a report from Bloomberg, that’s how much there is in real estate loans and bonds that are currently being traded at discounts.
That’s a huge opportunity. So, why is this happening? What are the keys to succeeding in this space?
Distressed Asset Sales
Q1 2023 bank data being reported through DistressedPro actually showed a remarkable improvement in mortgage and other debt performance.
So, why are so many billions of dollars of this debt being traded at discounts?
In many cases it is that banks and lenders need liquidity. Or at least they feel that they need more liquidity for what’s coming next. Certainly there have been banks that failed already. Which has led to others being able to buy their assets cheap.
In some cases, landlords are failing. They got in during the recent bull run, and thought they had magical money making powers. Unfortunately, they had no plan for changes in the economy. They didn’t foresee changing interest rates or credit issues when their loans came to maturity. Many borrowers didn’t prepare for the extreme inflation that is happening right now.
Another issue is that some doubled down on office and other types of commercial real estate that is now virtually extinct, instead of adapting to the changing economy.
All while new regulation has made it very unattractive for most investors in the secondary market to buy debt, and especially some types of real estate debt.
Overall the value of these assets may not have materially changed. At least not in the long term. It is more that the position of the owners and sellers has changed. Leading to the need to sell some assets inexpensively.
Capitalizing On This Opportunity
Much of this distressed debt will turn into the trading of the physical real estate assets. Often at a discount by motivated sellers, or where the new owners have purchased cheaply and want to cash in quickly.
Many of these properties may be ripe for improving. Whether that is physically, in terms of efficiency of management, or marketing and positioning.
While there is the above mentioned distress, there are simultaneously pockets of the country which are still growing tremendously. With new residents, cash buyers, and those eager to find a new place. It’s all about price and location.
As investors these are opportunities which can provide great wealth protection and cash flow for passive income.