Monday, June 22, 2009

Moody's: "Sellers Beginning To Capitulate To Realities Of CRE Markets."

Moody's has released its April Moody's/REAL Commercial Property Price Indices (CPPI) update and it is a doozy: -8.6%, after what many had expected was a shooting green reading of just -1.7% in March. The problem that many don't grasp, that even Moody's has finally caught on, is that once capitulation in CRE sets in, the bottom will be torn out. Furthermore, after the Madison random walk last week, this weekend I did a comparable one for 5th Avenue. The results are stunning and much worse than expected. Photos will be posted soon.
New York, June 22, 2009 -- Commercial real estate prices as measured by Moody's/REAL Commercial Property Price Indices (CPPI) decreased 8.6% in April, leaving the index at 25.3% below its level a year ago and 29.5% below the peak in prices measured in October 2007.

Moody's says the large negative return for April likely reflects in part the fact that deals closed during that month were negotiated at the end of 2008 and in the first quarter of 2009, when securities markets and overall sentiment were plunging.

"The size of April's decline, following a 5.5% decline in January, also suggests that sellers are beginning to capitulate to the realities of commercial real estate markets," says Moody's Managing Director Nick Levidy. "While loss aversion is no doubt still in play with many owners, more distressed sales appear to be occurring, resulting in more negative returns and causing larger drops in the index."

Overall sales volume in the market also fell in April as compared to March, and by count April had the lowest number of transactions in the history of the CPPI.

In the Eastern region, the CPPI shows prices for all four property types declining over the last year, but with apartment prices holding up best. These have declined 11.8% from a year before, compared with drops of 15.9% for industrial properties, 27.2% for offices, and 21.5% for retail.

Overall, the South has been the worst performing region over the last year. All four property types have seen annual declines of more than 20%, with industrial properties falling the most, with a decline of 28.8%.

The indices also show that all four property types have performed worse in Southern California than they have in the Western region as a whole. In Southern California, the office market has been the worst performer, with prices dropping 22.2% in the last year.

The three major office markets -- New York, San Francisco, and Washington DC—have all posted significant annual declines. The San Francisco office market saw a drop of 20.3%, while New York had a decline of 12.9% and Washington 21.1%, both less than the yearly decline for the Eastern region of 27.2%.

Moody's notes the Florida apartment market, like the apartment market in the South as a whole, has experienced three straight years of falling prices. Florida apartment prices are now down 31% from their peak.


Moody's/REAL Commercial Property Prices Indices are based on the repeat sales of the same properties across the US at different points in time. Analyzing price changes measured in this way provides maximum transparency and methodological rigor. This approach also circumvents the distortions that can occur with other commercial property value measurements such as appraisals or average prices, says Moody's.

hat tip Brad Sphere: Related Content
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