Survey: Distressed Investors Target Real Estate

NEW YORK (Reuters) – Investors who focus on buying distressed assets plan to snatch up troubled real estate this year as corporate restructuring opportunities diminish, according to a survey released on Tuesday.

The poll of distressed investors found 41 percent expect real estate will be particularly attractive this year, up from 19 percent in 2009.

“The shoe has dropped and now there are a lot of opportunities,” said Matt Wirz, editor in chief of Debtwire, which compiled the survey along with the law firm Bingham McCutchen, FTI Consulting and Macquarie Capital.

More than 30 percent of those polled said they also expect opportunities this year in consumer products companies, financial services, and industrials. About 25 percent said they would find the automotive sector attractive.

According to the survey, fund managers this year will focus on driving returns through short-term trading that capitalizes on market volatility, or buying long-term positions in distressed situations that could insulate them from market swings.

Fifty-four percent expect an increase in distressed mergers and acquisitions this year.

“We really feel like there’s several more years of slow growth ahead as the government removes stimulus, and tax rates and interest rates rise,” said Ed Albert, managing director at Macquarie.

EXPECTATIONS FOR RETURNS MORE TEMPERED

Despite expectations for higher merger activity, a diminishing supply of distressed corporate situations is expected to be an issue for fund manager returns this year.

About half of distressed investors said they expect to target returns of 15 percent or more, while about one-third said they do not see returns topping 8 percent.

That is a sharp swing from last year, when 56 percent said they expected returns of 20 percent.

Only one-quarter of those polled said they would increase their capital allocation to distressed debt in 2010, down from two-thirds in 2009.

Investors were split on when the economy will see its peak of restructurings. Thirty-six percent said the peak has already passed, and 34 percent said the peak will not occur until 2011 or later.

“We’ve really pushed a lot of situations out,” Albert said.

(Reporting by Emily Chasan and Chelsea Emery; editing by John Wallace)