The Azucena Take: Don't Expect Too Many Distress Properties

In theory, the economic problems caused by the pandemic has resulted in a lot of distressed property that is just waiting to be picked up on the cheap. The reality is that very few properties are in distress while the government and finical institutions are doing everything possible to avoid a repeat of 2008.

Marcus & Millichap has looked into the numbers and they are not what investors hope for but it’s still good news. There is an estimate of $50 to $100 billion in distress properties waiting to be snatched at a discounted price. Acquiring the property will be competitive as investors expect to see a solid recovery sometime between the 3rd and 4th Quarter. Those with distress property have plenty of resources available to ride out the storm.

Looking at the CMBS Loans Delinquency Rate also presents a more positive outlook. The number of loans that are 60 days or more behind vary dramatically. Compared to the 2008 crash, only a select part of the economy has been hit hard. Here is a quick break down of the numbers.

• 1.3% of industrial properties are behind on their loan (compared to 12.6% in 2008).

• Apartments are seeing a 2.5% delinquency rate (compared to 15.9% in 2008).

• Offices also had a minor delinquency rate compared to 2008.

• Retail and hotel properties had a spike in delinquency (exceeding the numbers from the 2008 crash).

While some of the numbers does look bad, there is hope for those struggling. Financial institutions and the government are doing everything to mitigate the crisis. There is more economic stimulus and easy access to capital that could help property owners in distress. Working with the Federal Reserve, financial firms are also working to avoid foreclosing on assets.

There will be foreclosures in sectors hit the hardest, but it will be nothing like the 2008 crash. Overall, don’t expect a wave of discounted properties to hit the market. Instead, you should anticipate the value of your current investments to rise.