RCA in the commercial property press:

Tight Lending Tanks Commercial Property Sales

Chicago Real Estate Daily reports: Commercial real estate sales in the Chicago area sank in the first quarter as four major asset classes had volume declines of greater than 80% compared with the year-ago period with lending still scarce and investors wary the worst isn’t over.


Deals for retail properties were practically non-existent, as just two shopping center sales closed in the quarter for $12.5 million, down 99% from the first quarter last year, according to data from research firm Real Capital Analytics Inc.

Apartment sales fared only slightly better at $32.9 million, down 94% from the first quarter last year. Office building sales plunged 85% to $218.6 million while industrial sales slumped 81% to $77.1 million.

While the recession and dim prospects for rents and occupancies is playing a role, New York-based Real Capital Analytics blames much of the stalemate on the debt markets.

Two years ago, commercial mortgage-backed securities (CMBS) and Wall Street firms provided 60% of the financing used to acquire commercial properties. Such debt has financed just 2% of deals since last September.

“The unwillingness of any other group to step in to help fill this massive funding gap is a primary reason that sales volume has fallen so far off the peak,” Real Capital Analytics writes.

Regional and community banks have doubled their share of acquisition financing, to 12% from 6% two years ago. But the most substantial changes have been that in the first quarter almost half of all deals involved assumed debt, while 7% of sales involved seller financing. Such deals — typically where the seller takes back a first mortgage — were “unheard of during the market peak,” says Real Capital Analytics.