IREI 2027 outlook sees lender deed-in-lieu opportunity

An IREI commentary published Nov. 12 describes a lender deed-in-lieu acquisition of a Southeast garden-style community at roughly the outstanding loan balance, about 20% below what the property had sold for a few years earlier.

The commentary, titled "2027: Finding opportunity in troubled capital structures," argues that returns are increasingly tied to the capital structure or ownership situation rather than the real estate.

The author writes that he is "selectively optimistic" about capital ready to invest meeting a large volume of property still working through a very different financing environment. He expects the opportunity to be selective across property types, markets and owners.

For allocators, the example puts the lender's terms ahead of the rent roll in underwriting. The buyer received fixed-rate financing well below market from the lender that took the asset back, the commentary says. Lenders generally are not in the business of owning and operating real estate, so they need operators who can step in quickly to stabilize a property. The key variable is how much of a deed-in-lieu bid depends on the seller's financing.

Renovated units achieved rent premiums more than double the firm's underwriting, and occupancy on unrenovated units held above 90%, the commentary says. Most units in the community had never been updated.