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Ashley Investment Group, LLC is currently targeting opportunities to capitalize on distressed real estate assets resulting from the state of the economy. The recession combined with leverage levels that had exceeded any reasonable limit, coupled with unstable investment vehicles created by financial engineers who regarded real estate assets as simply numeric entries in spreadsheet formulas, has led to what Ashley Investment Group, LLC believes to be an overcorrection. While the details may differ, this overcorrection is not unprecedented; in many ways it is quite similar to previous sharp downturns in the real estate market. Many banks have inadequate capital in relation to the type and quality of assets held. There were 140 bank failures in 2009, the most since 1992. As of May 9, 2010, 68 banks have failed this year. Through April, the rate of failures was more than twice of last year's - 64 banks compared to 28 in 2009. What makes this market exciting is not only the availability of investment opportunities, but also the lack of competition on the buy side. Many of our potential competitors remain crippled from leverage-induced overextension during the past few years. An inordinate amount of their time and energy is focused on resolving their own difficult issues. Many retail and residential developers and operators remain frozen, and in some cases are trying to unload portions of their own inventory to obtain the cash to save other properties on their balance sheet. Competition is also limited because many institutional investors in real estate are handcuffed by their own asset allocation policies. The huge downturn in equity prices over the last two years has forced many investors into a position where their allocation of dollars in real estate is far above their targeted allocation. Until their equity positions rise in price, or significantly more dollars flow into their investing pool, they are not able to put more money into real estate without causing a further asset allocation imbalance. The apartment market in the United States shows signs of stabilization in 2010 followed by a recovery in 2011 and beyond. Businesses are beginning to hire permanent help, new construction is slowing, home prices are showing signs of stabilization and renter demand is increasing. Tight home loan standards combined with the rapid population growth of the 20 to 34-year-old age group (an increase of 3.2 million people) will further pressure the demand for rentals. Distressed assets make up for a larger share of all transactions and REITs are beginning to enter the market. More and more lender-owned assets have begun enter the market at reduced prices, making up for approximately 30% of all closings year-to-date. This is the beginning of what many investors have been waiting for, knowing that distressed assets would trade at a discount but unsure how far prices would decline. It appears the market has bottomed out, and the time to begin investing and ride the wave to the top has arrived. | |||||||||||||||||||||||||||||||||||||||||||||||||||
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