Latest Indicator of CRE Market's Health: Moody's Pricing Index Hits New Low
National Real Estate Investor reports: The latest Moody’s/REAL Commercial Property Price Index, which is generated using repeat-sales data from Real Capital Analytics, displayed an important paradox emerging in the commercial real estate sector. Though property pricing fell to a new cyclical low in March (the latest reporting period of the index) and is down by 47% from its peak in October 2007, Moody’s indicated in the index’s accompanying report that this month’s results are actually a sign of the market’s improving health.
The reasoning behind that proclamation has to do with the increasing share of distressed sales counted as part of the headline index results. As National Real Estate Investor summarized, as the immense overhang of distressed assets begin to enter the market and are sold, it means that “…investors and lenders are realizing losses on their distressed assets on a massive scale. Experts say that process is painful, but those price corrections must occur in order for the nation’s commercial real estate market to regain its footing and for overstretched property owners to de-lever and bring cash flows into positive territory.” Put another way, the current volume of depressed-value troubled assets trading hands right now means that the broader pricing of non-distressed markets may not necessarily be falling as dramatically, if at all. In fact, this type of activity is an encouraging signal.
Juxtaposed to the drop in the headline index, pricing for trophy properties in the largest six US cities has been steadily increasing over the past several quarters as investors turn to those types of assets and markets for secure, albeit shrinking, yields. Moody’s/REAL also tracks pricing for individual property types, with office, apartment, retail, and industrial indices all down from the previous reporting period. Importantly, the apartment sector has remained the furthest above its third quarter of 2009-cyclical low.
View the full article on National Real Estate Investor: Latest Indicator of CRE Market's Health: Moody's Pricing Index Hits New Low
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Posted by: Nina Turner