NEW YORK - More investors are likely to move capital into real estate over the next couple of years to scoop up bargains even as the distress that has long plagued residential real estate broadens and takes hold in the commercial sector, a top restructuring expert said.
A lot of the investors I'm hearing about are now thinking of shifting their focus to real estate, because that's where they see the opportunities, said Mark Shapiro, head of global restructuring and finance at Barclays Plc's (BARC.L: Quote, Profile, Research, Stock Buzz) Barclays Capital, speaking at the Reuters Restructuring Summit in New York. That's probably where you're going to see capital shifting.
Asked where in the sector these opportunities would arise, he said, The whole gamut.
Several summit speakers have noted how capital markets have opened up in the last few months, though lenders and investors still steer far clear of the levels of risk they were willing to take before the global credit crisis hit in 2007.
Within the property sector, while much of the pain from residential real estate has likely hit -- though hundreds of billions of dollars of adjustable-rate mortgages will see rates reset higher between now and 2012 -- much of the emphasis on who gets hit next is on commercial real estate.
A growing number of developers and property owners are expected to default in the next couple of years because banks hoping to maintain sufficient capital to please regulators will be unwilling to roll over their debt or issue new financing.
Policymakers are expressing worry.
Commercial real estate remains a very serious problem, Federal Reserve Chairman Ben Bernanke told the House Financial Services Committee on Thursday. We are concerned, both because the fundamentals are weakening and because the financing situation is bad (and) could provide a source of a lot of stress, particularly for small and regional banks that have a very heavy concentration in commercial real estate.
A day earlier, Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, said commercial real estate posed one of the biggest risks to his measured optimism for a U.S. economic recovery. Lots of commercial construction is still in process, and until growth of supply stops, the industry statistics will continue to deteriorate, he said.
Shapiro said there is no market right now and no depth in the capital markets right now for many investors to dive into real estate. But that could change.
What's happening in distressed (investing) is that the more opportunistic investors (are) willing to take the risks around what is still a situation that still lacks visibility, i.e. real estate, over the next couple of years, he said.
(Additional reporting by Ros Krasny in Mobile, Alabama)
(Reporting by Jonathan Stempel; Editing by Phil Berlowitz.)