Report from BNY Mellon Investment Manager Sees Sales Spurred By Need for Investment in Neglected Properties
PLYMOUTH MEETING, PA and LONDON, August 17, 2011 — The significant amount of maturing mortgage debt attached to commercial real estate is providing an unusual opportunity for institutional investors, according to a recent white paper from URDANG, the real estate specialist for BNY Mellon Asset Management. The maturing debt presents an opportunity for investors to acquire properties on attractive terms from sellers who are overleveraged, the report said.
Such acquisitions may give the acquirers the ability to offer properties to renters at lower rates and with more attractive features than comparable properties, according to the report.
"The ability to acquire these properties at attractive costs is possible because of the significant amount of commercial real estate debt that is scheduled to mature over the next four years," said David Blum, managing director, portfolio management, at Urdang Capital Management and a co-author of the report. "Many of these properties have experienced deferred capital expenditures, which will require owners to invest additional equity or dispose of their assets."
David Rabin, managing director, private real estate, at Urdang Capital Management, and the other co-author of the report, added, "With banks increasingly willing to sell these properties and with commercial mortgage backed securities (CMBS) delinquencies at an all-time high, we believe there will be increasing opportunities to purchase or recapitalize over-leveraged assets at an attractive cost basis."
Also contributing to the attractiveness of selectively acquiring commercial real estate is that, aside from a handful high-end properties in top tier U.S. markets, commercial real estate values generally remain well below peaks reached during the period of 2005 to 2007, according to the report. The report attributed this drag on commercial real estate to the downward pull exerted by sales of distressed properties.
"This drop in values has put many otherwise healthy properties in a position where they will require infusions of additional equity so maturing mortgages can be refinanced," said Blum. "This gives new investors the opportunity to have a lower cost basis than those who bought similar properties a few years ago, providing them with the ability to offer lower rental rates than comparable properties with greater debt burdens."
Those acquiring properties at a lower cost basis can add value to properties even as rental rates are flat or declining, according to the report. Adding value to low basis properties will be an operational cornerstone of real estate performance over the next several years, the report said.
Here is a link to the paper: www.bnymellonam.com
Founded in 1987 with an exclusive focus on institutional investment grade real estate, URDANG offers a variety of strategies and products, managing approximately $2.6 billion in public real estate securities through Urdang Securities Management, Inc. and approximately $3.0 billion in debt and private equity real estate investments (gross) through Urdang Capital Management, Inc. for institutional investors and high net worth individuals throughout global markets and across public and private capital sectors. URDANG's research-driven process combines top down economic analysis and market/country selection with bottom up underwriting of properties, companies and management teams to seek high, risk-adjusted returns. It is one of the investment boutiques of BNY Mellon Asset Management.
BNY Mellon Asset Management is one of the world's leading asset management organizations, encompassing BNY Mellon's affiliated investment management firms and global distribution companies. Information about BNY Mellon Asset Management can be found at www.bnymellonam.com.
BNY Mellon is a global financial services company focused on helping clients manage and service their financial assets, operating in 36 countries and serving more than 100 markets. BNY Mellon is a leading provider of financial services for institutions, corporations and high-net-worth individuals, offering superior investment management and investment services through a worldwide client-focused team. It has $26.3 trillion in assets under custody and administration and $1.3 trillion in assets under management, services $11.8 trillion in outstanding debt and processes global payments averaging $1.7 trillion per day. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE: BK). Additional information is available at www.bnymellon.com and through Twitter @bnymellon.
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