Those with a nose for blood sense an opportunity is coming in UK and European property. At least, that is what I am hearing from people within the commercial real estate industry.
There are some investment managers who in candid moments say they will likely be handing back keys to the bank – in one case for a number of assets nominally worth more than €1 bn.
Meanwhile, potential investors who can 'provide a solution' in such situations are busy sparking up contacts and flying around, making pit stop meetings with those they believe will be involved in, or have knowledge of, such distress.
Everyone knows the main reason why cracks are appearing: interest rate rises that have taken place. In some cases, valuation downgrades are making it look like some people overpaid for assets when borrowing rates were low.
What especially piques my interest is which players will take advantage of this. And, if indeed a window of opportunity opens, for how long.
In a sense, a changing of the guard has been taking place in European real estate over the years as founders of opportunistic real estate firms have stepped back or retired. Or, in some cases, even quite young yet senior professionals have delegated key responsibility to even younger colleagues.
Look around and you will see there are hungry and very energetic folk out there who are now arriving at their desks at 6am with a new vigour.
Some have been making investments during these recent years in a rising market, often building thematic real estate platforms in, say, residential property or alternative assets. Now, their back story and experience in distress tells them a moment is coming, and there will be deals to be had.
That is not to say that some of the usual suspects won’t be busy too (see this month's interview with Blackstone's head of Europe real estate James Seppala), but from a bystander's position it will be intriguing to see if new reputations are forged in this era.
Broadly speaking, there are at least three areas worth particular attention.
Real estate credit is the big one, with a wave of refinancing and a wall of maturities coming that could create demand for gap funding and recapitalisations. Playing into that is the demand for real estate debt funds, which investors want a piece of given favourable risk/return dynamics.
Then there is the opaque, intriguingly private (!), world of secondaries. Some investors need to sell their positions to generate liquidity and/or rebalance their portfolios. Also, some managers will try to orchestrate continuation vehicles given end-of-life issues they have for certain existing funds. Or they are finding problems to do with the cost of capital. Again, recapitalisation opportunities could materialise whereby a fresh equity injection is required into the underlying assets. Sometimes, the secondary market is the quickest solution.
Thirdly, there is ESG which continues to be a major factor. This aspect has been covered extensively already by this magazine and others, as a number of assets are likely to become obsolete and basically stranded much more quickly than some originally imagined.
The transactional market might seem relatively quiet now, but things could be about to get much more interesting.