Clairvue Capital Partners Forecasts an End to ‘Extend and Pretend’ Among Commercial Real Estate Lenders in 2012

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Real estate lenders will feel more pressure to finally work out problem loans; Losses sustained by European financial institutions will also force them to reduce their exposure to the sector, increasing the supply of real estate assets for sale in Europe and the U.S.

Clairvue Capital Partners

Clairvue Capital Partners

While the domestic housing market will continue to struggle due to high unemployment, we believe that residential property values will remain stable, and that will help to keep commercial real estate investors optimistic in the New Year.

Clairvue Capital Partners forecasts five key trends that will influence the level of investment activity and market liquidity in commercial real estate in 2012.

“While the domestic housing market will continue to struggle due to high unemployment, we believe that residential property values will remain stable, and that will help to keep commercial real estate investors optimistic in the New Year,” said Josh Cleveland, a Partner at Clairvue.

“This year, commercial real estate lenders, particularly those with loans on properties that are worth near or less than their debt balances, may be more willing to agree to accept discounted pay-offs from their borrowers as prospects for a sharp recovery in values become more evasive and pressures mount for them to create liquidity,” added Jeff Giller, Clairvue’s Managing Partner and Chief Investment Officer.

Clairvue sees the following key investment trends in commercial real estate for 2012:

  •     The End of Extend and Pretend: Lenders will become increasingly proactive in restructuring and working out their problem loans, including organizing asset sales and agreeing to discounted pay-offs with their borrowers.
  •     The PIGS Won’t Stay in Their Pens: Contagion from losses incurred by European financial institutions on their sovereign debt holdings in the weaker European nations will reduce their appetite to lend and, therefore, will drive their need to raise capital by liquidating non-core holdings such as real estate, non-performing loans and private equity investments.
  •      The World Is Flat: An anemic U.S. economy will keep commercial real estate operating fundamentals flat and, therefore, keep property values from significantly rising.
  •     The Consumption Assumption: Americans’ insatiable propensity to consume will keep the U.S. from falling into a double-dip recession and, therefore, keep property values from falling.
  •     Water, Water Everywhere, But Not a Drop to Drink: Even though sovereign wealth funds and major corporations are holding significant liquidity in reserve, continued economic uncertainty and tightening government regulations will keep much of it on the sidelines.

Brendan MacDonald, also a Clairvue Partner, added, “These trends will impact commercial property operators, investors and lenders in different ways, but in general, we expect these trends to drive financial institutions to sell more of their loans and properties to their borrowers or to third parties at discounts in order to create much needed liquidity.”

About Clairvue Capital Partners
Clairvue Capital Partners was formed to provide liquidity or related solutions to institutional investors by recapitalizing or acquiring non-controlling interests in real estate private equity funds, joint ventures, operating companies, institutionally managed property portfolios, and other types of real estate platforms. With offices in San Francisco and New York City, Clairvue invests globally. Clairvue is currently investing Clairvue Capital Partners I, an investment partnership with capital provided by Goldman Sachs Asset Management’s Private Equity Group.

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Rosalia Scampoli
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