In a crisis, the winner is the one who can operate with debt-free funds such as equity or investor money. Those who work entirely on credit lose out. And right now we’re seeing one hell of a real estate crisis. For years, investors like Rene Benko were viewed by the public as celebrated, glamorous real estate investors. In principle, any investor could have done this – thanks to zero interest rates from the ECB, you could get extremely cheap loans and buy a portfolio of real estate on credit.
Real estate crisis: interest rates rising, indebted investors in distress
But now interest rates have risen very quickly, with the key interest rate from July 2022 alone from 0% to now. to 4.5%. Im TradingView In the chart we see the development of interest rates since 2004. Investors who took out large loans for real estate several years ago and have to take out follow-up loans are now often unable to bear the skyrocketing interest burdens on new loans in the real estate crisis. Added to this is the changed environment caused by the corona crisis. Many office spaces are empty and there is a lack of rental income to be able to service loans. Anyone who has worked brutally on credit in the “sunlight” of years of zero interest rates now often has their backs to the wall.
And what has been apparent for some time: now is the moment for investors who have accumulated investor funds to wait for the right time. Debt-free funds from pension funds, insurance companies, private investors, etc. are now being intelligently invested in real estate by professional managers. The mega-investor Blackstone (not Blackrock) now wants to use this real estate crisis to make investments at low entry prices, says company boss Steve Schwarzman in the following interview. Because it is clear: many indebted investors are currently forced to sell properties little by little and feel compelled to make price reductions.
Brilliant starting position for major investors with lots of investor money
Blackstone is one of the world’s largest investors in commercial real estate and says it has accumulated $200 billion in uninvested investor money. According to Steve Schwarzman, higher interest rates have put pressure on European real estate. “If you have to carry an entire portfolio that used to cost next to nothing, you have to sell something at 6% interest rates. We see some very, very good buys in this environment because, unlike most people, we have tremendous capital” said Schwarzman. In plain language: This real estate crisis is now making it possible for its funds with billions in sums in Europe to get cheap entry into real estate, while providers such as SBB, Adler Group, Renen Benko’s Signa etc. are either making money or trying to survive by selling individual properties.
Bargain market is open?
You can see it these days: The Signa companies around Rene Benko are in trouble, the group’s first real estate company in Germany only reported on Friday insolvency at. The Elbtower could possibly be taken over by the billionaire Klaus-Michael Kühne, who is already involved. Other high-quality properties could also find buyers at reduced prices despite the real estate crisis. New top properties in prime locations are likely to be in demand after the crisis is over, and tenants will probably be found for them.
In the case of Blackstone, Steve Schwarzman is using his investor money to target, among other things, warehouse properties, data centers and student dormitories. One can assume that top office locations such as the Elbtower or other properties in Düsseldorf or Berlin will find buyers from distressed real estate companies. Now, thanks to the real estate crisis, there are a lot of bargains being made. The celebratory investors who have been soaked up with massive amounts of credit from the low interest rate phase that has lasted for more than ten years are now often the losers. Investors with real asset reserves that are ready to invest can now get in cheaply and will probably be the winners in a few years with nice rental returns – because they were able to buy the properties cheaply.
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