Big banks are selling off their real estate assets again. Is this a source of deal flow that investors should be pursuing?
What strategies may apply here? If there are deals to be found, how do you get access and participate in them?
The World’s Biggest Banks Are In Trouble
If Lehman Brothers was in business today, they would be a very small player compared to the current major financial institutions. Yet, these giants are already struggling financially.
Deutsche Bank reportedly just had to take a 9% hit on selling its London headquarters compared to the building’s valuation earlier this year. They are going to lease space instead.
Then there is Credit Suisse, which has been plagued by scandals. This resulted in them having to sell the prized Savoy Hotel in Switzerland to recoup some working capital. The bank’s market cap has fallen 50% in 2022.
So, what does this all mean for investors?
Expect Credit To Tighten Substantially
As the biggest banks struggle with their own cash flow, that is going to be passed down the food chain, choking off those that they feed with capital and credit.
Expect it to quickly become much harder to borrow. Expect more transactions that are based on financing to fail. Expect interest rates to rise even more to offset risk.
This will all in turn force many more players in the chain to sell off their real estate assets.
Is It Time To Buy REOs?
There have been very few REOs available over the past few years, indicating that banks may not be that desperate yet. Or they may not push that much of their balance sheet into this category to show how weak they are. The whole process has been hampered by COVID related regulations.
When REOs have been available, the demand has been so strong that they are snapped up fast, and with little discount.
However, there will be institutions selling assets and clearly motivated to cut deals quickly.
In addition to big banks, some of the best value deals may be found from local banks, credit unions, private funds that have been purely speculating on the market, and private lenders.
What About Buying Mortgage Notes?
Mortgage debt can still be a great investment. However, it has certainly become more complicated and drawn out since COVID. Especially in the residential world.
Buying Real Estate Assets From Banks
So, how do investors go about finding distressed asset deals from these institutions and other investors?
This game has definitely changed over the years too.
Most investors will find there is very limited access. You need connections and strong personal relationships to get access – along with a super strong resume, track record, lots of capital, and proof you can hold and will manage the assets well.
This is not a channel that the vast majority of investors will be able to directly tap into in this cycle.
You are more likely to find participation through funds that check these boxes, have the access, and which will allow you to benefit from this strategy.
Find out more about investing in secured debt and real estate, go to NNG Capital Fund.