Equity in U.S. commercial property may evaporate: report
Thursday, July 30, 2009
Source: Reuters
Reuters reports: The equity in $1.3 trillion worth of U.S. commercial real estate acquired or refinanced in 2006 through early 2008 is at risk of being completely wiped out by price collapses, according to a report by Real Capital Analytics.
About $2.2 trillion of properties acquired or refinanced after the 2004 start of the commercial real estate bubble have lost value, according to the report, released on Wednesday by the commercial real estate data company. As most those deals were financed with 70 percent to 80 percent or more of debt, the lower value will directly eat away at the equity.
Prices for warehouses, office buildings, shopping centers and apartment buildings are down about 37 percent from the peak in 2007, according to the Moody's/REAL Index. The cost and availability of new loans has dried up, and lenders that will grant loans will do so only at 50 percent to 60 percent of value. Prices have plunged at an increasing rate, dropping 18 percent in the first five months of 2009, Real Capital Analytics said.
Meanwhile, the value has declined even more as rent and occupancy rates have tumbled.
Properties bought or refinanced in 2006 through 2008 have seen a 25 percent decline in value, Real Capital Analytics said.
The value of distressed properties has more than doubled so far in 2009. Some $93 billion of office, industrial, retail, and apartment properties in the United States have fallen into default, foreclosure or bankruptcy this cycle, Real Capital Analytics said. Struggling hotels and other commercial property types add at least another $31 billion to the total.
Less than 10 percent of the distressed situations that have emerged have been resolved. Lenders have been slow to foreclose and have chosen to instead extend the loans.
Loans originated at the peak of the market in 2007 are seeing the highest levels of default.
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Posted by: Nina Turner