Distress is Finally Here
There has been a lot of chatter this week on real estate Twitter about people starting to see distress in the market. Jonathan's Twitter post got quite a bit of attention and showed that something was starting to happen. Read the comments to the post and draw your own conclusions.
Loan Maturities
Most of this distress comes through loan maturities coming up. Most of these properties will not be able to refinance or will need to bring additional equity. They will need to sell for a discount. However, similar issues are happening with loans with adjustable rates due to rapid rate increases. As you can see in the graphic below, we have over 7 B+ of apartment loan maturities in the last quarters of 2023. Some of these deals will need to sell for a discount, most likely in 2024.
Our Market Distress
In our markets, we haven’t seen much distress yet. However, this one property is going to a 10-X online auction, which is a first that we have seen in the OKC market. This also was a problem property they had been trying to sell for a long time. Therefore, you are finally starting to see these problem properties being forced to take serious action. We are seeing a couple more of these properties coming to market. However, all of them are primarily in bad areas that we wouldn’t touch.
Sun Belt Market
Most of the distress you are seeing right now is in the sunbelt. Investors took more risky bets there because, at the time, rates were so low, and rental rates in those markets were increasing drastically, which made buyers overly optimistic and aggressive on projections. However, some of this distress will seep into other markets like the ones we are in.
How JB2 moves forward
We continue to communicate closely with different players in the market to be attuned to what is happening in real-time. Our conservative approach has not put us in this risk category. Our loan maturities are still far out(8/2029), all our loans are fixed below market rates (4%) today, and we never projected huge rent increases. At the end of the day, it’s hard to tell precisely what will happen. In the meantime, we gear up for hopefully some better opportunities in 2024.