Commercial Property Loses Four Years of Gains
The Wall Street Journal reports: Commercial real estate values are falling fast and are quickly catching up (or more precisely down) with the drop in residential values.
The Moody’s/REAL National All Property Type Aggregate Index is out and finds that value of offices, apartments, hotels, warehouses and malls has fallen to March 2005 levels. Remember March 2005? Big news then was Terry Shiavo and the Dow was still solidly above 10,000.
Since then, of course, lots of office buildings have traded hands, mostly with huge amounts of debt. Falling prices hurts landlords with lots of debt. In 2007, for instance, there was $200 billion of issuance of commercial mortgage backed securities. Values are 20% below where they were when that debt was issued.
“Given the extent of price decline, significant potential exists for leveraged properties to have depleted their credit support. In other words, the equity has disappeared,” says Neal Elkin, President of Real Estate Analytics, the firm that produces the index. The index hit 150.63 in February, down 0.6% from the previous month. (100 on the index equals December 2000 prices.)
The monthly index measures commercial properties in general. Full quarterly numbers due next month will break down by sector and region.
The Moody’s/REAL index measures the value of real estate by surveying the change in sales prices of actual properties. It uses a similar methodology for commercial real estate as the often cited Standard & Poors Case-Schiller Home Price Indexes do for residential property. The Case-Schiller 20-city index says January 2009 home prices are at the same level at October 2003. Stay tuned to see if commercial real estate can catch its rival in this race back in time.
View the full article on The Wall Street Journal: Commercial Property Loses Four Years of Gains
Posted by: Nina Turner