LONDON-The shrinking of the world economy, limiting commercial real estate transactions to about 50% of their peak from a few years ago, will create distressed deal opportunities, according to a new study by Ernst & Young. In the company’s Global Market Outlook, company experts predict a slow convergence of bid-ask spreads, coupled with increased transparency in the alternative investing industry.

Mark Grinis, the firm’s global real estate funds leader, said in the study that most of the past boom-bust cycles have been made up of too much available capital overcharging the business cycle, resulting in a supply and demand imbalance. However, the most recent cycle has twists previously unseen, including the US Federal Reserve’s policy measures, the European sovereign debt crisis and the massive US debt affecting future GDP growth.

Grinis said in a statement that the market is considerably smaller than it was in 2007, and because it’s contracted so substantially, it may have now over-contracted. “The market is much smaller in terms of the amount of equity being raised, the availability of debt financing and the number of transactions in the market,” he said. “However, there are now signs the sector is reaching the bottom, and fund managers should brace themselves for an acceleration of deals and financing activity to hit the market, albeit slowly, over the next several years.”

Investors should gain from new requirements for regulatory and financial reporting, he said. However, the global market health will also have an impact on future growth, as corporations today earn on average about 47% of their wealth from international trade, he said.

“Hopefully, we’ll be able to reflect back on this period as a floor and see a crescendo of deal flow and activity that eventually starts to pick up,” Grinis said. “The likely scenario will be a gradual build-up, making this a good time to have capital to deploy in the market.”

Instant Insights /

Slow Market Clean-Up Should Benefit Investors

Related Stories

Recommended For You