Watch Out for that Fat Tail Risk!
As we begin the New Year and approach six months in business at Hodes Weill & Associates, we are struck by the range of views on the state of the commercial real estate industry in terms of valuations, demand trends and the opportunity and risks associated with investing. We have heard well-considered opinions ranging from “the world is coming to an end” to “the worst is behind us” and “the extent of distress is overblown.” Recently, we have heard from investment professionals that the pace of “reasonably priced deal flow is picking up,” beginning in late 2009. Others opine that while there are many deals in the market, nothing represents “good value.” We are hearing that lenders are just starting to become “serious” about addressing their portfolio issues, particularly in the CMBS arena. But we note that the top 100 banks hold $1.1 trillion of commercial real estate loans, including approximately $290 billion of construction and land loans (and have taken minimal mark-downs to date). These widely divergent opinions have resulted in a substantial bid/ask spread and limited transaction volume to date – particularly for transitional or non-stabilized assets.
