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July 5, 2023 | Protracted Hangover For Real Estate Investors and Lenders

Danielle Park

Portfolio Manager and President of Venable Park Investment Counsel ( Ms Park is a financial analyst, attorney, finance author and regular guest on North American media. She is also the author of the best-selling myth-busting book "Juggling Dynamite: An insider's wisdom on money management, markets and wealth that lasts," and a popular daily financial blog:

The seemingly endless party of growth in real estate supported by ever-cheaper finance has reached an end, with a protracted hangover now ahead.

This has broad implications for the many sectors that feed off real estate and is why realty-led recessions have historically been the harshest. See, Industries that rely on thriving downtowns suffer, and Office turmoil roils ground lease negotiations.

Not just in North America, either, see German commercial property deals tumble to a 5-year low, with deal volumes this year collapsing 50% from the first half of 2022.

After years of excessively easy money, the correction phase may last much longer than most imagine, see, Commerical real estate rebound may not happen until 2040. Kiran Raichura, Capital Economics Deputy Chief Property Economist, breaks down the outlook for office building values and even multi-family housing in this direct video link.

Real estate is the most highly levered asset class in the world, so when borrowing costs and vacancy rates rise sharply, free cash flow can quickly evaporate, pushing down property values and the ability or willingness of owners to hold.

Public and private equity and lender funds in this space also need cash to cover increasing redemption requests as unit holders face a spreading cash crunch of their own. Several froze withdrawal windows earlier this year, but that can’t last indefinitely. Liquidation selling is just getting started. See Blackstone REIT announces major asset liquidations as redemption requests continue:

Blackstone real estate investment trust (BREIT), which recently made news for exercising a clause that restricted owner withdrawals for several consecutive months, has not taken the news lying down. The real estate investment trust (REIT) is still trying to raise money for its shareholders and recently announced the sale of $3.1 billion worth of its commercial portfolio. It also is rumored to be considering a sale of its Las Vegas portfolio.

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July 5th, 2023

Posted In: Juggling Dynamite

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