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State of Distress… March 24, 2010

Posted by Erik Swanson in Articles, Research/Data, Retail News.
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Retail Traffic’s Elaine Misonzhnik wrote an excellent piece on the state of the market for distressed retail real estate. Transactions are increasing but it’s relatively few considering the number of properties in trouble.  The article helps answer the question a lot of us are asking, “Where are the deals?”.

Reassessing Distress
Three years after the peak in retail real estate values, the market for distressed real estate remains murky.

By Elaine Misonzhnik

To date in 2010, Phillips Edison’s and PECO Capital’s $70 million Strategic Investment Fund I, which targets distressed retail developments and loans, has only been able to pull the trigger on a few acquisitions. The fund, launched in 2007, was formed to buy distressed lifestyle and power centers larger than 150,000 square feet. At the time, many firms were lining up to take advantage of an anticipated wave of distressed buying opportunities. But few deals—especially on the kinds of properties the fund has targeted—have come on the market, says David Birdsall, chief development officer with Phillips Edison & Co., a Cincinnati, Ohio-based real estate firm with a 25-million-square-foot retail portfolio.

The most notable transaction the fund has closed occurred in October 2009, when it purchased Bridgewater Falls, a 600,000-squarefoot foreclosed regional mall in Cincinnati for $43 million. The property, built in 2004 for $100 million, offered a solid value-add opportunity, according to Birdsall. But in the months since, the fund’s managers have not seen any other attractive deals materialize.

The fund is not alone. Although the amount of real estate counted as distressed has ticked up steadily each month, there has been no buying sprees. Instead, expectations have been adjusted when it comes to distressed real estate opportunities. The thinking now is that lenders will be more proactive about dealing with distressed properties going forward, but only at a snail’s pace.

Full article here:

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