Discounted equity from distressed sellers more available in global market

Investing in distressed real estate opportunities in Australia may be less feasible than in overseas markets, according to a private markets investments expert.

When investors are desperate to create more liquidity in a portfolio, investment firms may be able to acquire the assets at a significant discount to their net tangible value.

Martin Scott, head of Australia for global private markets firm Partners Group, said that Australian investors may be unwilling to sell off assets at significant discounts, with markdowns of 30 to 40 per cent having been seen in many deals globally over the past 12 months. Instead, they have been more likely to sell listed assets such as equities to generate immediate liquidity — even though this can create an undesirable short-term balance in their portfolio.

“In particular, local superannuation funds have the benefit of 9 per cent superannuation guarantee contribution of cash flow that has also assisted in managing their short-term cash needs and portfolio management issues,” Scott said.

“[In the global real estate market] there is a strong supply-demand imbalance, where there are far more sellers of assets than buyers. This means the buyer can choose the best deals,” he added.

According to Partners Group research, among five global firms involved in real estate secondary investment there is combined US$2.5 billion of buying power with about US$20 billion of assets for sale, pointing to significantly greater opportunities on the global market, he said.

Ken Atchison from Atchison Consultants said that while Australian investors may be hesitant to part with assets at a large discount, there were still significant opportunities in the Australian market from sellers who don’t want to be subject to the vagaries of the listed market. Where there was no income providing liquidity it was a case of how much sellers were prepared to pay for liquidity, he said.

Atchison Consultants research suggested there were sellers in the local market looking to acquire immediate liquidity, and Atchison anticipated that there would be interest in these opportunities from both domestic and international investors.