Tanking Real Estate Values Take Toll on Pension Funds
National Real Estate Investor reports: Optimism is growing that a turnaround is on the doorstep. In recent months, the stock market has recovered much of losses notched over the past year. In early August, New York-based rating agency Standard & Poor’s issued an encouraging report on the recovery of stock prices for publicly traded real estate firms. In the second quarter, the S&P property and REIT indices saw sharp rises, following a drop of nearly 20% in the first quarter.
But many industry experts believe that more pain is ahead. According to Robert White, president of New York-based researcher Real Capital Analytics, some $2.2 trillion of properties acquired or refinanced after June 2004 have lost value since their transaction date.
Given that prices have declined 25% on properties purchased or refinanced from 2006 through 2008, “the equity in $1.3 trillion of properties is at great risk, if not already wiped out,” says White.
Both institutional and private owners alike see no signs of an immediate rebound in the property sales market to help stem the tide of dwindling values. Commercial property sales through the first six months of 2009 amounted to only 7% of the volume reached at the peak of the frothy sale market in the first half of 2007, according to Real Capital Analytics.
But White also notes that the number of office property sales in June was 24% higher than in May. “The jump in activity in June may be an early signal that buyers are returning, lured by lower prices,” he says.
Still, June was one of the worst months to date for new distress, with $13.6 billion worth of properties falling into default, foreclosure or bankruptcy. According to White, by the end of June the total value of distressed commercial properties nationwide was nearly $115 billion.
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Posted by: Mark Alferman