Distressed Opportunities Slow to Come to Market

Commercial real estate owners and investors have been chasing a "mirage of distress" in the acquisitions market, according to Keith Locker, president and CEO of Inlet Capital.

In an interview with REIT.com at REITWeek 2012: NAREIT's Investor Forum, Locker offered his opinion on the market for distressed sales of commercial real estate assets. The efficiency of the current market has made finding deep discount difficult, Locker said. Rather than pricing assets for sale, the bankers are holding onto them, he said.

"There have been such large pools of capital, both public and private, that are active in the deal market, especially in the coastal cities," he said. "When a recapitalization comes up, these large pools of capital have been very efficient and values have been relatively fair."

Locker said his company has had an active year on both the debt and equity sides of the capital markets. Spinoffs and divestures of non-core assets by REITs have presented opportunities, Locker said.

"As REITs have become more quality focused and lower leverage focused, they have been selling some of their higher-levered assets or assets that don't fit with their long-term strategy," Locker said.

In reference to the potential for mergers and acquisitions, Locker noted that the wave of publicly traded REITs being taken private in 2006 and 2007 was primarily driven by mortgage financing and the significant availability of debt. Locker said the market has "corrected," with debt beginning to come due. However, he pointed out that they have yet to come public in stand-alone public offerings. He singled out the lodging and shopping center sectors as two areas where that could occur.