In late April, Mark Foster, attorney at Snell & Wilmer in California, put together a couple of distressed opportunity funds for his clients. 

The clients wanted to get out in front of what they anticipated would be a lot of distress hitting the commercial real estate market. 

“Everybody has a lot of dry powder, so they wanted to get in position and start buying,” Foster says. “So I did a couple of distressed opportunity funds initially in late April.”

Foster says these clients were focused on non performing loans, specifically of the CMBS variety. “They thought they might be able to get some good deals,” he says. “They got a few, but then that dried up.”

But there will still be plenty of opportunities. With retailers still closed in many strip malls, there seems to be an excellent opportunity for these funds to collect more assets. But so far, it hasn’t happened yet. Although many tenants aren’t paying rents and many landlords aren’t paying mortgages, the floodgates haven’t opened yet.

“The deals aren’t hitting the street yet,” Foster says. “So what I’m trying to figure out is how they’re going to hit the street and what the pricing is going to look like.”

Eviction moratoriums are one major reason for the pause in the market right now. “Right now, the tenant is in default, the borrower is in default, and nobody can go in and take the property back and re-tenant it or anything,” Foster says. “They’re not sure what they want to do. So there is just a pause on that side.”

Foster thinks once the moratoriums on evictions are lifted, things will start moving. “When they do stop, there are going to be a lot of chess pieces moving,” he says. “The first [piece] will be retail. There are a lot of retailers that haven’t paid their rent in a long time. They’ve been closed, and landlords are just seeing how this shakes out. They know they can’t evict now.”

Even if they could evict, there might not be anyone there to replace the struggling retailer. “A body with some breath [the current retail tenant] is better than a body with no breath,” Foster says.

Still, when those moratoriums are lifted, Foster expects to see a flood of evictions. “Most retail tenants, like restaurants and fitness centers, will not be able to recover,” he says. “I don’t think the landlords or their lenders are going to be able to extend and do anything. All of a sudden, you’ve got a bunch of evictions and a bunch of half-vacant buildings that owners are going to have to sell. And they’re going to have to sell at a discount.”