A record $300 billion in funds designated to buy distressed commercial real estate assets remains on the sidelines despite plunging commercial real estate values tied to the COVID-19 pandemic, according to New York-based Enertiv.
As commercial real estate sales and acquisitions of $2.5 million-plus properties have plummeted 79 % since February, stashed billions in “dry powder” for potential investments will continue to grow while the pandemic takes its course, the commercial real estate data platform’s managers said.
Reluctant commercial real estate investors do have some cautious options if they are willing to think outside the box. However, those options — to be successful — rest on adopting new technologies to enhance risk mitigation and maximize asset values, Enertiv managers said.
Cost-saving technologies include an investment in inexpensive mobile apps that will digitize documentation, assets, and workflows associated with distressed properties so that investors can focus on where investments would prove most valuable.
“One way to increase the sale value is to decrease the risk premium,” platform managers predict. “For example, part of this risk premium is to cover an event in which critical equipment like the boiler plant has a catastrophic failure shortly into the new ownership period. When there’s no data to work from, these events seem random and push up the risk premium. In reality, they are not random, they are the result of poor maintenance practices and can be reasonably predicted.”
“Given that, a seller with a digitized asset can demonstrate that the likelihood of a major failure is diminished, thus lowering the risk premium and raising the sale price,” Enertiv managers said.