More than two years after the pandemic began, the expected wave of distressed assets hitting the market may soon come to fruition. A survey by consultancy firm Auxadi found that more than 82 percent of real estate professionals surveyed in the U.S., UK and Europe expect to see distressed assets hitting the markets over the next 12 months. The figure is a 15 percent increase from what professionals expected last year.
The findings come on the heels of inflation in the U.S. hitting a record 9.1 percent in June, the highest number in decades, preceded by a series of interest rate hikes. Auxadi’s study, which surveyed more than 100 senior-level real estate investors in May of this year, also revealed that investors are the most optimistic about the residential sector over the next two years, with 69 percent of those surveyed predicting that sector will post the strongest gains. Just 56 percent of respondents anticipate office assets in central business districts to post the highest numbers. Researchers cited inflation, worsening economic conditions and the ongoing war in Ukraine as some of the factors in investors’ attitude. “Real estate investors are showing a more bearish outlook with distressed asset sales, a flight to capital safety and slower deal flow as key trends for the year ahead,” said Auxadi’s Rima Yousfan.
Owners looking to refinance maturing loans in the near future will be challenged given the higher cost of borrowing, which could likely push some assets into distress and eventually up for sale. The findings could be the tipping point for firms waiting on the sidelines to buy up distressed assets. If and when they do, they’ll be well-equipped: fund managers focused on the sector have $376 billion in dry powder at the moment.