Big Investors 'Fight’ for Commercial Real Estate Sold Off

Table of Contents

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Reasons for the Sell-Off
Difficulty in Finding Bargains
The Decline of Office REITs
Case Study: Mavik and Angelo Gordon

The commercial real estate sector is currently experiencing a severe recession, leading to a sell-off of properties. This downturn has caused a scramble among big investment funds, as they compete with each other to acquire shares of Real Estate Investment Trusts (REITs) – a domain traditionally occupied by retail investors. Conflict and confrontation have become rampant as management groups of large investment funds engage in bidding wars to secure the most profitable shares.

Reasons for the Sell-Off

Several factors have contributed to the current sell-off in commercial real estate. Firstly, the rising interest rates have put downward pressure on prices, making properties less attractive for potential buyers. As a result, sellers are struggling to find buyers willing to meet their asking prices. Additionally, the pandemic-induced remote work trend has resulted in a decline in office demand. Many businesses have chosen to downsize their office spaces or allow their employees to work from home permanently. This has left numerous storefronts empty, creating further challenges for the commercial real estate market.

Difficulty in Finding Bargains

With few options available in the stock market, large mutual funds are finding it increasingly difficult to identify attractive investment opportunities. The lack of bargains and uncertain market conditions have pushed these big investors towards REITs, particularly those involved in commercial real estate. These REITs have been heavily impacted by the sell-off, making them potential targets for big investors seeking undervalued assets.

The Decline of Office REITs

According to industry group Nareit, office REITs have suffered a significant decrease in their assets, losing around 10% as of July 13, 2023. The overall capitalization of all REITs has also declined by approximately $200 billion over the past two years, falling to $1.3 trillion. This decline has created an opportunity for big investors to acquire weak REITs that are at risk of defaulting or being sold off at discounted prices.

Case Study: Mavik and Angelo Gordon

The recent conflict between investment funds Mavik and Angelo Gordon highlights the intense competition within the struggling commercial real estate sector. In June of last year, Mavik announced its plans to merge its REIT with Western Asset Mortgage Capital. Western Asset Mortgage Capital, which owns mortgages for various residential and commercial properties, had experienced a decline of approximately 50% in its share price over the past year.

Soon after Mavik's announcement, Angelo Gordon, a larger hedge fund and REIT manager, entered the scene with a more favorable bid to acquire Western Asset. Angelo Gordon claimed that their offer was superior to Mavik's and highlighted the risks associated with Mavik's proposal. The negotiations between the two investment funds were characterized by back-and-forth exchanges, representing a classic case of "big fish eat small fish" deals prevalent in the struggling commercial real estate sector.

The sell-off in the commercial real estate sector has attracted the attention of big investors seeking undervalued assets. The combination of rising interest rates, declining office demand, and empty storefronts has created a challenging market environment for sellers. As a result, big investors are flocking to REITs heavily impacted by the sell-off, leading to conflicts and confrontations among investment funds competing to acquire them. The ongoing struggle between Mavik and Angelo Gordon exemplifies the intensity of the competition within the sector, with large investment funds fighting for the most lucrative deals.