Vulture Funds Preparing to Buy CRE Assets

Could we see a spurt in buying activity before the bailout is enacted? It makes sense to me. The argument goes that commercial real estate is being unduly punished. So why not buy now when the getting is good? Moreover, for CMBS assets specifically, the terms offered by an opportunistic fund are likely to be less punitive than what the government has on offer. Others are skeptical, however.

Those investors feel that if they move quickly, they will be able to snap up deals before the government implements its $700 billion bailout plan, which could be voted on by the House as early as Monday. They point out that banks and other sellers of the soured securities and mortgages may be more willing to do deals with them because, unlike the government plan, they aren't insisting on provisions such as a limit on executive compensation.

"We'll try to buy some of the assets ahead of the transfer," said Chris Hoeffel, a managing director at Bahrain-based Investcorp, which recently formed a $1 billion fund to buy high-yielding commercial real-estate debt.

Other opportunistic investors, though, say they likely will stick to the sidelines for now. They are skeptical that the government's purchase of distressed assets will accurately establish what they are worth. So far, there have been few transactions, despite the desperation of banks to sell, because of disagreements over pricing.

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