41% Price Drop in Commercial Real Estate

Good news for commercial real estate investors…

National property prices on commercial real estate dropped 9.1% in June from last year, according to Moody’s commercial property price index. The rate declined 0.9% over the first half of 2010, and while prices remain 4.2% above the current recession low of October, they are down 41.4% from the peak in October 2007. Moody’s bases the index on the dollar volume of repeat sales transactions in commercial real estate. Analysts reported $2.1bn of these transactions in June, up from $1.5bn in May and $800m in April..

Moody’s managing director Nick Levidy said the increase in sales could mean prices have fallen far enough to meet new demand. “The increase in dollar volume in each of the past two months, taken together with this month’s 43% increase in the number of repeat sale transactions, may be an early indication that buyers and sellers are starting to agree on market-clearing prices,” Levidy said. “If this is in fact occurring, we would expect transaction volumes to rise steadily and price volatility to ebb in the months to come.” Analytics firm Realpoint found delinquency rates on these loans that have been securitized, CMBS, reached 7.79% in July, more than two times the 3.15% reported a year ago. It’s also more than 27 times the recorded low point, a 0.28% delinquency rate in June 2007.

The delinquent unpaid balance for CMBS loans reached $60.8bn in July. While it did increase $387.9m from the previous month, it’s nearly 90% below the previous six-monthly average of $3.14bn in increases. Commercial loans that were either 90-plus days delinquent, in foreclosure, or REO grew in the aggregate for the 31st consecutive month, reaching $49bn in July. That figure is nearly triple the year ago and up 9% from the previous month. Realpoint said the delinquency rate could reach between 9% and 10% by the end of the year with the potential to reach 11% under more heavily stressed scenarios.

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