Since the late 1990s, opportunity-vulture fund investors havehad slim pickings in the U.S. Core and value add funds crowded themout in relatively distress-free markets with ample capital flowspushing up prices in frenzied bidding. Opportunity funds, managedby big investment banks and global financial giants, turned tail,targeting emerging Asian markets and Europe where higher riskdevelopment projects could score outsized returns.
Well, the birds are back, circling in the sky, waiting foraction. We have talked about problems surfacing among recent buyerswho overpaid and overleveraged. Near-term rents won't cover debtservice for many of these deals and many borrowers who counted onrefinancing on more favorable terms come to terms with the capitalcrunch. Some small REITs struggle with lower share prices, publiccompany costs, and deteriorating markets. Homebuilders sellinventoried land at cents on the dollar, trying to hang on -- noone anticipates demand to pick up for new housing anytime soon.Condo projects crater in Florida and southern California. And whoknows what will happen to all those loosely underwritten loans inall those recent vintage CMBS and CDOs?
Ironically, several major fund managers launch money-raising fornew opportunity vehicles just as problems surface in their core andvalue add funds. Well, they overpaid and overleveraged too, tryingto push out all the money investors were pouring into their kittiesduring the frantic 2004-2007 binge. Of course, don't be surprisedto see familiar players joining forces or buying from one anotheras they lick wounds in the decline. Just as all their tradingwith each other helped escalate prices on the way up, they willlook to take advantage of each other on the way down, and probablytemper the downside slide.
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