by Daria Walker, Walker Realty Capital
A few weeks ago, LAMA hosted a luncheon focused on Distressed Assets. The room was absolutely packed, and we all gathered around the speakers waiting to hear which markets were in the most trouble. Was it Stockton? Oakland? South Los Angeles? Definitely San Francisco…
It turns out that California, relatively speaking, is fine. Investors who fled the state looking for better cashflow and less regulation are finding out that the grass isn’t greener, and it’s muddy.
While our banks are slowly coming back onto the scene, those in other states are still grappling with diminished performance across their portfolios. Ultimately, they’ll likely have to sell their assets at cost, and it will be a heyday for investors looking to purchase an office in places like Missouri.
When asked about specific regions, the panelists named states like Ohio, New Jersey, and Connecticut, who are starting to feel the rumblings in their urban markets. While interest rates are an underlying factor, everyone agreed that insurance companies have completely lost their minds. Another issue one of the panelists pointed to was mistakenly lending to slumlords, who let their properties fall into such disrepair that they can’t sell, refinance, or even make their note once the tenants vacate or stop paying rent. Others pointed to rising vacancy as core markets have become more affordable.
Multifamily in markets such as Nashville and Oregon are starting to feel the pangs of the ‘economic headwinds,’ while cities like Austin and Dallas who are dealing with flattening rents, are not too far behind. Those looking for steep discounts or upside opportunity were cautioned to avoid California and New York due to their heavy regulation and rent control ordinances.
While we all wait on the sidelines to see the true impact of the recession-that-no-one-will-call-a-recession, there is increasing competition for distressed assets, mainly because of scarcity. There is still a disconnect between buyers and sellers regarding property values, and a lack of foreclosures as banks tend to avoid having to own and manage properties. Private lending is seeing an uptick in opportunity across the country, and are partnering with investors who have solid track records and can tolerate their high interest rates. So, they will likely be the ones who see the most benefit.
Ultimately, there was a consensus that the worst is yet to come; however, we likely won’t see a national fallout of epic proportions as we did in 2008. Those of us doing business in California will definitely see the market tighten, but the government’s priority is cleaning up the mess of the ‘value-add’ party from the last cycle. So, while affordable housing developers and family offices with deep pockets will likely thrive through ’25, anyone looking for arbitrage will have to go elsewhere.
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Questions can be forwarded to LAMA Co-chair, Daria Walker, DRE # 01975398 (925) 325-6033