Analysis Sees Steep Losses at Property Funds

Cumulative losses on commercial real estate are expected to reach double digits in the second quarter for fund managers, according to a Hodes Weill & Associates analysis of a sampling of top firms.

The New York advisory firm found first-quarter gross returns reported by four of the biggest public companies in the sector ranged from negative-1% to negative-8.8%. Given that the economic effects of the coronavirus pandemic only began in mid-March, the expectation is that those managers will have to write down their real estate holdings further by the end of June, said co-founder Doug Weill.

“It’s hard to see anything other than at least a double-digit decline cumulatively,” he said. The first quarter, he added, was just “the beginning of a series of potential write-downs. This is an indication of what’s to come. But the losses we’re likely going to see in coming quarters should come as no surprise, given the ongoing uncertainty created by the pandemic.”

Weill noted that the recognition of declines in portfolio values could drag into the third and fourth quarters — particularly if investment-sales volume continues to be so thin that market pros have few comparable sales to use as a baseline.

Hodes Weill’s review analyzed the publicly announced commercial real estate returns of Apollo Global, Ares Management, Blackstone and KKR. Many large public firms don’t disclose those returns in filings, including Brookfield, Carlyle Group and Colony Capital.

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