It is the moment real estate investors have been anticipating since the beginning of the recession.
Banks finally are beginning to sell off about $789 billion in real estate debt that is estimated by researcher Trepp LLC to be coming due within the next five years. In all, banks, insurance companies and other lenders, along with commercial mortgage-backed securities, have a total of $1.2 trillion coming due in the next three years, according to Trepp.
Investors have sunk billions into a variety of funds, separate accounts and other vehicles aimed at this investment opportunity that seemed to be just around the bend when the crisis hit in 2008. An aggregate of $115.7 billion was raised in 203 funds over the past five years, according to London-based alternative investment data provider Preqin. Today, there are real estate debt funds attempting to raise a combined $44.7 billion, Preqin reports.
But instead of quickly selling off the debt during the recession, banks extended the maturities on commercial real estate debt, hoping for a better market. It appears the summer's collection of economic catastrophes — including the European debt crisis and the credit downgrade in the U.S. — have caused banks to lose faith in a recovery and they are beginning to sell.
“Until last summer, many banks were rewarded by not selling non-performing loans because property values were increasing,” said James Walker III, managing partner at New York-based private investment firm Fir Tree Partners.
So after three years of waiting, banks are selling off debt, either to new investors or back to the properties' owners. One of the biggest deals so far was the sale of Anglo Irish Bank Corp.'s $9.5 billion portfolio of U.S. real estate debt to private equity firm Lone Star Funds and banks Wells Fargo and J.P. Morgan Chase & Co.
Bank of America Corp. is selling a commercial real estate loan portfolio valued close to $1 billion to a partnership of real estate investment firms Square Mile Capital Management LLC and Canyon Capital Realty Advisors LLC, and money manager Invesco Ltd.