RCA Insights

Where Does the Market Go Next? Which Market?

By on April 7th, 2016

I have been traveling in Northern California this week as the team in New York released the February 2016 figures for the Moody’s/RCA CPPI. In every client visit to talk about the markets and the economy, what struck me was the diversity of opinions on future trends for this index.

To recap what the team posted elsewhere, the National All Property Index saw month over month declines of 0.3% in January and 0.2% in February. These declines come after six years of monthly increases.

The price declines, though, were really focused on the 6 Major Markets of the U.S. with prices down 1.2% between January and February. The CBD Office market in particular posted a 1.7% decline in February and is the most significant driver of the overall declines in February.

Where does the market go next? In part I think where you sit determines where you stand.

Investors exposed largely to the 6 Major Markets have been a little more dour. The shock to the CMBS market last fall and earlier this year is changing patterns of financing and pricing expectations. Some believe that there are simply more adjustments to come, though all are hopeful that the recent narrowing of CMBS spread continues.


Those exposed to the Non-Major Markets have been more optimistic. The shock to CMBS financing did not hit as hard in these locales given access to a variety of sources of financing.

While commercial property prices are determined by a number of factors, the shock to pricing in January and February should serve as a reminder that prices are influenced by the ease with which one can finance a deal.

Jim Costello

Jim Costello

Senior Vice President

Jim Costello has worked in the CRE space on issues of urban economics since 1990, including a 20-year stint at Torto Wheaton Research. Jim expanded the reach of the Torto Wheaton Research team developing forecasts of global market fundamentals. He also developed approaches to pair the forecast results with frameworks to answer investor questions on asset values and relative investment opportunities.

In the aftermath of the Global Financial Crisis, Jim provided advice to the Treasury Department and helped educate these professionals on commercial real estate performance. Jim is a member of the Commercial Board of Governors of the Mortgage Bankers Administration, where he helps policy makers understand the commercial real estate industry.

Jim is expanding the capabilities of the Real Capital Analytics team on issues of real estate market dynamics. Jim has a master’s degree in economics and is a member of the Counselors of Real Estate.