Wave of Rescue Capital Moves on Ahead of Opportunistic Buyers

Rescue capital could make a dent in the amount of distressed real estate deals in the market.

Rescue capital is hoping to beat opportunistic investors to the punch when it comes to providing needed liquidity to distressed commercial real estate. Although both groups are hoping to generate alpha returns, rescue capital aims to provide a shorter term solution with preferred equity, mezzanine debt or fresh joint venture money to help owners hold onto troubled assets.

“We have had an extreme and rapid shock to the real estate market. There are a lot of operators out there with good projects who have had what were good, sustainable business plans just upended,” says Doug Wells, CEO of Denver-based Broe Real Estate Group (BREG), an affiliate of The Broe Group. “What rescue capital can be is an early stage structure around which to resolve some of these situations,” he adds.

BREG launched its $250 million rescue capital platform in June. The BREG Strategic Investments Program will provide “expedited capital solutions” for liquidity strained commercial real estate properties and ventures that are experiencing distress specifically related to COVID-19 market disruptions. The platform is focused primarily on preferred equity and joint venture investments in growth markets throughout the Southeast, Southwest and Western U.S. “I do believe these things will take some time. Our expectation is that our holds will be three to five years,” adds Wells.

Denver-based Hospitality Real Estate Counselors (HREC) also is gearing up to launch a new platform to broker rescue or “runway” capital for hotel operators. A common number being thrown out is that the average hotel is worth about 30 percent less now compared to what it was worth pre-COVID, notes Michael Cahill, CEO and founder of HREC and co-founder and principal of HREC Investment Advisors. What that means is that owners are not necessarily upside down, but it does mean they have lost all of their equity. So, they are motivated to hang onto assets long enough to ride out the recovery and rebound in values, he says.

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