Limited buyers, scarce money: commercial real estate in tough times: PwC



    TORONTO, Aug. 17 /CNW/ - Despite continued signs of "green shoots" in the
macro-economy, there remains significant obstacles to recovery in the
commercial real estate industry (CRE). In fact, according to
PricewaterhouseCoopers (PwC), there are increasingly challenging conditions in
CRE, the main culprits being:

    
    -  Tight industry-lending conditions
    -  A dearth in investor appetite for commercial mortgage backed
       securities (CMBS)
    -  Expectations for higher capitalization rates which imply decreased
       valuations
    -  Financial weakness and/or sluggish growth amongst tenants
    

    "The credit crisis and ensuing recession have dragged commercial real
estate markets into very trying times, marked by value losses, rising
foreclosures, and reduced property revenues," says Frank Magliocco, partner
and leader of PwC's Real Estate practice in Canada. "There is simply scarce
money and therefore limited buyers."

    
    According to PwC, there are several pockets of weakness for Canadian
investors, including:

    -  Secondary and tertiary geographies: CRE in rural and industrial areas
       or small- to medium-size strip malls typically carry higher risk than
       properties in large urban centers or iconic mall spaces
    -  Vulnerable property types: Hotel and leisure, suburban office and
       industrial space are considered to be the most vulnerable to the CRE
       downturn
    -  "High Risk" tenants: A large cohort of CRE leasors and renters are
       facing significant financial or operational challenges, an especially
       notable risk if "flagship" tenants are in deep distress
    

    "Owners need to immediately implement monthly or quarterly cash flow
reviews to understand exactly what their short-, medium- and long-term capital
needs are and, perhaps even more importantly, immediately identify what
options are available to overcome inevitable refinancing hurdles," notes
Magliocco. "In some cases, a formal restructuring process, equity injection or
other non-traditional strategy may be beneficial."
    Furthermore, certain owners of CRE should consider divesting non-core or
underperforming properties as a means to generate cash or capitalize on
growth. On the other hand, well-capitalized investors may want to see if value
can be extracted from the downturn via opportunistic acquisitions.
    In either case, according to PwC, it is critical to keep abreast of the
current dynamics in the CRE M&A market. Identifying and building relationships
with the key capital providers, buyers and sellers in the market is a critical
first step, which should be followed by the implementation of an appropriate
M&A positioning and go-to-market strategy. Such careful contemplation and
planning may mean the difference between success and failure.
    Supported by over 150 professionals across Canada, PwC's team of leading
real estate and restructuring professionals is experienced in working with
stakeholders in the real estate sector, and focused on helping clients to
mitigate the risks they face and pursue opportunities to grow and improve in
this market.
    For more information please visit www.pwc.com/ca/realestate or
www.pwc.com/ca/cre.

    About PricewaterhouseCoopers LLP

    PricewaterhouseCoopers (www.pwc.com) provides industry-focused assurance,
tax and advisory services to build public trust and enhance value for its
clients and their stakeholders. More than 155,000 people in 153 countries
across our network share their thinking, experience and solutions to develop
fresh perspectives and practical advice. In Canada, PricewaterhouseCoopers LLP
(www.pwc.com/ca) and its related entities have more than 5,200 partners and
staff in offices across the country.
    "PricewaterhouseCoopers" refers to PricewaterhouseCoopers LLP, an Ontario
limited liability partnership, or, as the context requires, the
PricewaterhouseCoopers global network or other member firms of the network,
each of which is a separate and independent legal entity.





For further information:

For further information: Kiran Chauhan, (416) 947-8983,
kiran.chauhan@ca.pwc.com; Carolyn Forest, (416) 814-5730,
carolyn.forest@ca.pwc.com

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