Global investment and money flow continues to heat up, which, along with office trends, is creating great opportunities for investors tapped into sources of distressed commercial debt and REOs.
According to the latest Capital Markets Survey global commercial real estate investment in the U.S. surged 19% in the first half of 2013, and worldwide is forecast to hit $500 billion for the year. Appetite for commercial back securities and debt has also grown, with analysts anticipating another 40-50% increase in volume this year, following a 48% lift in 2012.
The latest NAR survey also shows increased activity in the commercial real estate market, with respondents reporting they see the most action in the office market, with conditions improving for smaller deals too.
Contrary to some expectations it seems that the office footprint in the U.S. is actually growing. Google just announced expanding office space, but it’s not just the big tech firms readying for expansion. SMEs are looking for more office space too. Coworking has blossomed as a trend with numerous new shared working spaces popping up all over the country to serve independent entrepreneurs and startups, even in the most distressed real estate markets of Detroit and Atlanta.
Coworking spaces have helped some office building owners revive their cash flow, but coworking is growing up too. As entrepreneurs launch startups, get funded, and add team members, they require more space. Brands like Venture X in SW Florida are servicing this demand by adding private offices and team areas that yield far higher rents per square foot than previously seen.
Retail is still alive with some niches growing, industrial is doing well in some areas, multifamily is pretty much tapped out, and hospitality/hotel is still struggling. But the office sector offers big growth opportunities. It’s ripe for flipping or refurbishing to convert to higher yielding spaces and then reselling or holding for cash flow.
At the beginning of April 2013 U.S. banks reported some $44 billion plus in non-performing commercial real estate loans on their books between defaulting debt and REOs, much of which is office space.
There are a number of strategies for capitalizing on these distressed commercial REO, or non-performing mortgages for sale. Conditions for smaller deals may be getting better but with one prominent global brokerage reporting $7 of capital chasing every $1 in prime product, there is clearly plenty of cash out there to leverage for larger deals with better returns too. Plus, creative bridge lenders are now offering up funding for securing even larger deals until investors can raise other funding or finding an end buyer.
So why not go big?