RCA Insights

Distress and Pricing in the US Commercial Property Market

By on November 18th, 2020

A K-shaped recovery applies not just to the U.S. economy, but to U.S. commercial property prices as well. The RCA CPPI through October shows continued price growth for the industrial and apartment sectors, while the retail and hotel sectors continue to slide. The office sector is somewhere in the middle.

The gap between buyer and seller expectations has narrowed for the apartment sector despite initial panic earlier in the year. For the industrial sector, this gap is now gone and deal volume, while down from a year ago, is back to a normal level, as shown in the latest edition of US Capital Trends.

The gap in price expectations continues to widen for the retail sector, however, and deal volume teeters near record-low levels. The hotel sector is also experiencing abnormally low levels of deal activity. Prices are falling for the hotel sector, but not fast enough to entice buyers to step off the sidelines and push deal activity back to a more typical pace.

Distressed loans surged following the onset of the Covid-19 pandemic. As this distress mounted, workouts and distressed asset sales climbed as well. Distressed asset sales have represented only 1% of total transaction activity over the last two quarters, but some sectors like retail are facing much more distress than average.

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Distress data analysis by Alexis Maltin.

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Jim Costello

Jim Costello

Senior Vice President
jcostello@rcanalytics.com

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.