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Thread: Distressed properties may flood markets

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    Default Distressed properties may flood markets,00.html?

    Published May 28, 2009

    Distressed properties may flood markets

    But Asia is in better shape than mature markets, says GIC Real Estate chief


    (SINGAPORE) Distressed property assets may emerge in developed markets in the next two years or so, GIC Real Estate's president Seek Ngee Huat said yesterday.

    'Refinancing difficulties will force many property owners to sell their assets into an already weakened market,' he said at the first public seminar organised by the National University of Singapore's Institute of Real Estate Studies.

    According to Dr Seek, not many distressed sales have surfaced in the troubled property markets of the US and UK yet. Nevertheless, a 'flood' may come if credit markets remain tight as large volumes of loans mature.

    Professor at the Wharton School of the University of Pennsylvania Joseph Gyourko shared some worrying numbers on this at the seminar. He cited estimates from Goldman Sachs, which found that US$1.2 trillion of commercial property debt will come due in the US from 2009 to 2011.

    With the near shutdown of the commercial mortgage-backed securities market, some property owners will not be able to obtain refinancing, he said.

    In fact, distressed property assets in the US have just started to appear and will increase in number over the next few years, Prof Gyourko told reporters on the sidelines of the seminar. These assets can come from any property segment depending on owners' ability to roll over debt.

    There will be a 'historic investment opportunity not seen in the US since the early 1990s' and investors are setting up funds for this, he said.

    GIC Real Estate's Dr Seek said that most property markets in developing Asia are in better shape because they relied less on leverage. While mature markets are more likely to offer opportunistic acquisition deals, emerging Asia seems to be attracting strategic long-term acquisitions, he said.

    There are also investment opportunities in undervalued real estate investment trusts (Reits), Dr Seek said.

    The downturn has affected Reits globally, which are now separated into 'haves' and 'have-nots' - the 'haves' are those with sound asset bases, manageable debt levels and the ability to raise new funds, he said.

    'Further consolidation of the Reit market is inevitable,' he added. The 'haves' will survive this downturn and become stronger, while the 'have-nots' will languish and some may eventually fail or be absorbed.

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    May 28, 2009 Thursday

    'Much uncertainty' in real estate

    By Joyce Teo, Property Correspondent

    GIC Real Estate president Seek Ngee Huat believes the global property sector still faces much uncertainty and that more distressed assets in the developed world are likely to emerge in the next two years.

    Real estate values in developed markets have been written down rapidly due to falling rents and rising capitalisation rates.

    Further declines are expected, particularly as investors who face refinancing difficulties are forced to sell their properties, Dr Seek told an audience at the National University of Singapore's Institute of Real Estate Studies public seminar at InterContinental hotel yesterday.

    Professor Joseph Gyourko of The Wharton School, University of Pennsylvania, said: 'There's a lot of debt coming due across all sectors in the United States.'

    He said housing prices should stabilise in the bubble markets of the US sunbelt region such as Arizona but sharp price downturns in key coastal markets including New York City can be expected this year.

    'Deleveraging has begun in earnest in the West and we are yet to see the full impact of that on commercial real estate,' he said. 'The next five years are looking even more challenging than what we have just gone through in the debt market.'

    A number of over-leveraged markets have yet to bear the brunt of maturing debt that will occur in the next one to two years, said Dr Seek. Distressed private equity has yet to surface, he added.

    Most of developing Asia has been hit by contracting demand but fortunately, as it is not as overly leveraged as the US, it will probably not suffer massive writedowns and depressed values, he said.

    There are positive signs of financial markets stabilising but it is too early to tell if the global economy is out of the woods yet. 'Until we see a sustainable economic recovery... (only then) will growth and rents rise again,' said Dr Seek.

    'Opportunities abound, more immediately in undervalued Reits and distressed debt, and perhaps in the next year or two, in undervalued or distressed assets particularly in the developed world,' he said.

    Reits, or real estate investment trusts, without a sound asset base and manageable debt levels will continue to languish, and eventually some will fall or be absorbed. 'I certainly do not want to leave you with the impression that real estate, even in developing Asia, is already on a growth path. There are still a great deal of uncertainty,' said Dr Seek.

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