A “distressed asset” refers to an investment in real property that is priced below market value—typically due to solvency or cash flow issues. In layman’s terms, a distressed asset is a bargain that can be seized upon by well positioned real estate investors.

Distressed asset opportunities arise at particular moments when the seller is encumbered and the market for such properties is relatively cool, creating a demand mismatch for capital. The ability to realize value from a distressed asset rests on:

• Being able to identify and acquire the distressed asset at an optimal moment.
• Having the resources and experience to realize the untapped value of the distressed asset.
• Key Takeaways:
• Successful distressed asset investing requires experience.
• Access to distressed asset funds was extremely limited during the years following the GFC and Covid-19. Asset managers work to offer distressed asset investing, alongside quality sponsorship, to accredited individuals.

Distressed assets are considered by some to be an attractive diversification option during moments of public market volatility. Distress allows professional investors to capitalize on a lower price while also optimizing those cashflows through expert management.

Distressed Assets During Economic Downturns

Distressed asset opportunities arise far more common during economic downturns for reasons one might expect:

• An operator/owner or asset manager faces hardship.
• The current owner of the distressed asset faces other business challenges which harms cashflow to maintain the property assets.
• The current asset owner is forced to sell the asset at a lower price as a result of unexpected adverse economic conditions.
• Some lenders are not equipped to own real estate. When underlying distress affects an asset to the point that a lien holder no longer wishes to invest in it, lenders may want to sell their position to avoid the difficulty of working out the problems.

Assuring Quality

Success in distressed asset investing requires experience; the ability to accurately assess distress and opportunity; and sound strategies for realizing value and managing through uncertain times. 

The following strategies may come into play as an experienced investor targets a distressed asset: Reporting from Bloomberg on the current outlook of distressed real estate fund managers.

Access to Distressed Assets

While large investment firms were able to achieve sustained success during the GFC and Covid-19, individual accredited investors enjoyed little access to quality. “Insider experts” are needed to access the best asset fund structures.

Two expert run funds we recommend are :

USA: Equity Multiple LLC : www.equitymultiple.com

UK: Property Plus Limited: www.propertyplusworld.com