Tuesday, September 22, 2009

Commercial Real Estate Prices Continue to Fall: At 18-Year Low and Getting Worse

Moody’s Property Index Resumes ‘Steep’ Fall in July

By David M. Levitt

Sept. 21 (Bloomberg) -- Commercial real estate prices in the U.S. resumed a “steep decline” in July after showing signs of leveling off in June, Moody's Investors Service said, as credit restrictions curtail lending and push landlords toward default.

The Moody's/REAL Commercial Property Price Indices fell 5.1 percent in July from the month before, Moody's said today in a statement. The index is down almost 39 percent from its October 2007 peak. The decline in June was 1 percent.

Commercial property sales this year may fall to an 18-year low. This latest set of numbers suggests no letup in that trend, said Neal Elkin, president of Real Estate Analytics LLC, a New York firm that partners with Moody's in producing the report.

We are still vulnerable to moves on the downside, Elkin said in a telephone interview. As time passes, the distress and the stress among those who need to sell is growing.

Elkin cited figures from Real Capital Analytics Inc., whose data are used in compiling the report, showing the portion of sales classified as troubled -- those properties in or close to default -- almost doubled to 23 percent in July from March.

That's “something we've never seen, Elkin said.

Sales this year through July totaled about one-third of the year-earlier number, Moody's Managing Director Nick Levidy said in the statement. The market averaged about 375 sales a month this year compared with almost 1,100 a month last year, he said.

Office sale prices fell 23 percent from a year ago in New York, 27 percent in San Francisco and 22 percent in Washington, according to the report.

South Affected

Prices of apartment buildings in the U.S. South have seen some of the steepest value declines, according to the report. Apartment prices in the region dropped 44 percent in the 12 months through June, almost twice the nationwide decline of 24 percent, and are now about half what they were two years ago.

Florida apartment values tumbled 40 percent in a year, the report said.

The decline is being caused in part by “a ripple effect from the overbuilding of condominiums in those markets, many of which are now competing as rentals, he said.

Robert J. Abalos, Esq.