Mitchell Hunter Forecasts Rising Distress in Real Estate: Insights for Investors
In the ever-evolving landscape of commercial real estate, the status of distressed assets serves as a barometer for the industry’s resilience and adaptability. Mitchell Hunter, chief commercial officer at Trimont, is at the forefront in identifying trends in distress.
In this Q&A, Hunter delves into the escalating challenges faced by office and multifamily portfolios, outlining key factors contributing to the surge in distressed properties. They range from the impact of rate cap expirations to the outlook for 2024 and potential opportunities for investors.
Q: Have you seen more properties in stages of distress (ranging from loan delinquency to foreclosure proceedings) in the fourth quarter compared to earlier this year?
A: Yes, we are seeing more problems in our office portfolio and multifamily.
Q: If so, what are the most common factors leading to this increase?
A: Maturities are driving the conversation, so most of the issues are around the sponsor having to contribute additional equity. Given today’s values most sponsors are not willing to contribute more equity, so they are handing back the keys. Another factor is rate cap expirations.
Q: What is your outlook for the first half of 2024—largely status quo or a continuing uptick in distressed properties?
A: Largely status quo for the first of the year. I do anticipate an uptick in distressed as the year progresses.
Q: What market factors are contributing to this outlook?
A: Upcoming maturities, there will be an element of kicking the can but some properties are just too far under water (Work from Home office vacancies driving office distress. Interest rates driving multifamily distress. )
Q: How will this impact the volume of distress-related work for your organization?
A: We anticipate an increase of work in 2024. Trimont hired an additional 6 individuals in Q3 and Q4 expecting our volumes to increase.
Q: For investors, where do you anticipate opportunities will arise from distress in 2024?
A: Hard to say, but the bid/ask gap needs to be tighter. Today sellers and buyers are still far apart. I do believe there are one-off opportunities and I’m hearing that banks are starting to get pressure so we could see pools of loans coming out as some point in 2024.
Q: Looking specifically at the office sector, what factors (aside from remote working) could contribute to increasing distress in 2024?
A: Lack of reserves for TI is one issues we are seeing. Reserves have been used to cover debt service and if the sponsor isn’t contributing additional equity that creates a problem when you are trying to lease up a building.
Q: What property types are most likely to face rising distress rates in 2024?
A: Outside of office, I expect an uptick in multifamily.
Emily Fu is Content Director of Connect Commercial Real Estate, where she covers the east coast markets, including New York, Boston & New England, and DC & Mid-Atlantic markets. She produces daily news stories as well as longer-form content, ranging from Q&As to thought-leadership pieces. She also writes feature stories for Connect Money.
With previous stints at Reuters, Seeking Alpha, and Commercial Observer, Emily has covered the finance side of the commercial real estate industry, technology, media, telecom (TMT), and fashion. She attended the Columbia Graduate School of Journalism and currently resides in Manhattan.