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Real estate investors go begging

Investors in real estate funds can’t give their stakes away.

In another sign of more bad news to come for commercial real estate, NYPPEX Private Markets reports a sharp drop in prices for limited partnership stakes in real estate funds in the unregulated secondary market. NYPPEX says the average bid for these partnership shares plunged 61% over the past month to a price that represents roughly 22 cents on the dollar.

NYPPEX, one of the larger dealmakers in the secondary market for private equity ownership stakes, says the rapid deterioration in bid prices for commercial real estate funds reflects rising concern about “vacancies, rental rates and refinancing risks” on the properties the funds’ either control, or have ownership stakes in.

And NYPPEX, in a client report to be released later today, says investors have good reason to be wary of buying shares in commercial real estate-focused funds. In the report, NYPPEX writes:

We estimate that less than 60% of commerical loans originated during the 2005 to 2008 period will qualify for refinancing in 2009 to 2012 due to lenders’ tighter underwriting standards, reduced cash flows an price declines. We expect fund terms to extend and investor returns to decline for commercial real estate partnerships unable to refinance loans coming due.

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