Renowned Commercial Real Estate Investor Sees 2021 as Best Buying Opportunity in a Decade
MIAMI, Dec 8, 2020 (GLOBE NEWSWIRE) – Philip Blumberg, head of American Ventures, commented today on the outlook for commercial real estate in the U.S. for 2021. Mr. Blumberg is creating a $ 1 billion fund to invest in distressed Class A office properties, his fifth of its kind over three decades.
Well respected for his market predictions, Mr. Blumberg has a 30-year track record of raising investment capital, buying distressed commercial real estate and selling before declining demand. Too much media attention he foresaw the Great Recession in 2006. By 2008, Mr. Blumberg had sold his national real estate portfolio – consisting of class A office properties in the country’s Sunbelt – with most of the investments being sold at record prices.
The launch of the fund planned for the first quarter of 21 corresponds to Mr. Blumberg’s investment approach – the formation of funds shortly before or during market valleys. For the past 30 years, as a precautionary measure, he has established funds just before or during virtually every major economic downturn.
American Ventures achieved an average annual return of 17.9% net of investor fees and expenses over a 16 year period. In 2000, Pensions & Investments and the National Council of Real Estate Investment Fiduciaries each rated American Ventures as their top mutual funds. From 1992 to 2000, Mr. Blumberg’s fund achieved an average annual return of 22.5%.
“Difficulties usually offer opportunities. This axiom applies today as never before,” said Blumberg. “Starting in January, government regulators will take a worse view of mortgage lending underperformance. This in turn will affect more lending as banks market the real estate on which the lending is based. This spiral will create one of the greatest opportunities.” to buy office buildings at high discounts in a decade. “
Mr. Blumberg gave some insights into the commercial real estate market in 2021:
- In anticipation of a distressed credit / foreclosure market in Q1 21, the Fed issued a payment order to banks last month prohibiting them from using capital for share buybacks and similar measures.
- American Ventures is already seeing a surge in real estate foreclosures, suggesting that traditional bank loan remedies are starting to displace credit indulgence.
- Office values will continue to fall due to falling office occupancy rates as the pandemic peaks in the next few months.
- Some Class A office properties are starting to sell below replacement cost – a trend that is expected to accelerate in the coming months, creating a self-propelling cycle with more market pressure on owners.
- Mr. Blumberg sees the greatest purchase opportunities in the sun belt – also due to the advantageous state tax structures.
- In Texas and Florida in particular, American Ventures is seeing increasing symptoms of market distress, including a torrent of sublet space entering the market due to tenant relocation or default.
- The pandemic has also created a “new context” for acquirers in the valuation of Class A office buildings – namely the cost and logistics required to retrofit buildings to meet tenants’ demand for virus-free, healthy work environments (e.g. (E.g. airflow, existing HVAC capacity), refurbished common rooms, UV lighting).
- For example, Mr. Blumberg claims that retrofitting most commercial properties currently in the Dallas market will cost $ 1.50 to $ 2 per square foot.
- Building height and elevator capacity have also become important factors as they can add additional renovation costs – to expand elevator capacity and eliminate queuing issues due to social distancing issues.
- Empty suburban shopping centers are best suited for conversion into class B office buildings – as they do not meet the requirements of class A office tenants and offer the greatest potential for including “flexible” space in layouts.
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