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Moody's Announces Its REAL Commercial Property Price Index Accelerated Decline In July
Despite the hopium spread each and every day by frequent TV appearances promoting "pocket change you can believe will be worth less tomorrow than today", the facts continue to paint a divergent picture. The most recent datapoint comes courtesy of the Moody's thinktank, as the Rating Agency's REAL Commercial Property Price Index, which accelerated in July to a -5.1% drop in July, after "just" a 1% decline in June. The index "is now 30.8% below what it was a year earlier and 38.7% below the peak measured in October of 2007."
Moody's: US commercial real estate prices resume steep declines in July
New York, September 21, 2009 -- Commercial real estate prices as measured by Moody's/REAL Commercial Property Price Indices (CPPI) renewed its steep declines and low transaction volume in July, Moody's Investors Service reports. The CPPI was down 5.1% from June after having declined by only 1% the prior month. It is now 30.8% below what it was a year earlier and 38.7% below the peak measured in October of 2007.
Overall market transaction volume continued the pattern of calendar 2009. "The market has averaged about 375 sales per month for the seven months in 2009," said Moody's Managing Director Nick Levidy. "Over the same time period in 2008, sales were averaging nearly 1,100 a month."
Moody's Regional Property Type Indices show prices for apartments in the East performing significantly better than in other regions (and also better than other property types in the East). In the East, apartments have declined 6.0% in the past year, and 10.5% in the past two years, which is smaller than the decline of any other regional property type for just one year. Nationally, apartment sector prices have declined 24.4% in the past year.
Southern apartments have posted the steepest drop over the past year, at 44.2%.Florida apartments have also seen dramatic declines in the past four quarters, declining 39.8%. Florida apartment prices are now 49.8% from their peak prices.
Other notably weak markets the Indices point to are the office and industrial markets in Southern California. In that area, office values have declined 25.8% and industrial values 24.2% since a year ago.
The CPPI
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.
The report, "Moody's/REAL Commercial Property Price Indices, September 2008," is available on the company's website, www.moodys.com.
h/t Ed
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Alright, I have a fun little exercise for everyone to partake in.
It is called Visualization Practice.
Today we will all be visualizing Ben Bernanke handcuffed, and being led in/out of a court room. His big bald head is down, the expression no longer one of complete contempt, but more of a "Aw shucks" look to it.
Please continue to visualize this every day with me until the desired effect has been achieved.
Moodys, working on the trust issue.
Sorry, too late. I don't trust a word or idea that they produce.
This scares me since I am in construction. We see no private projects in development at all. Everything is coming from the government sector.
FEMA camp construction pays well.
Yes, plus the cities and counties are broke, since all the money is at the Federal Reserve Board (aka Skynet).
time for the IYR to jump to yearly highs, to be followed by ML/BAC doing 3rdaries, and 4thsees, in the underwriting dept. for all the REIT dividend suckers
Dilution ?
we dont need no stickin dilution!
There are hundreds of industrial properties in Silicon Valley that have not had a tenant since 2001. When are these holders going to toss it in?
Back in 2005-7 we saw conversions of industrial property to condos. Not such a good idea.
We are now seeing conversions into churches -- time to pray for a job -- and homes for Parkinson's and Alzheimer's -- "I forgot what a job was".
What next? Acorn offices? Food banks? Training facilities for census workers? Flophouses?
Obamavilles? :)
hopium dens......
Yesterday I saw a rather large building in a major Tampa mall being converted into some sort of "hospital." By my residence, we have small office malls in which a church has moved in. Very ironic their neighbor is a mortgage company! So, one can get a mortgage, go nextdoor to pray the economy doesn't blow up. ;)
As I drive around town here, many, many commercial buildings are vacate & up for lease. Some areas are like a ghosttown...
Maybe not Flophouses but many of those buildings east of 101 in San Jose/Sunnyvale/Mountain View would make good shelter for the rising homeless population in the area.
Trade in your camping tent or mobile camper for a cot.
(Cots for Tents program)
Tents. Reminds me of the tent village a year ago in suburban DC at the forested triangle by an entrance ramp from 50 to 66. I was not able to count all the tents.
Now there is a new market for CRE. They just need to get the cops to arrest the tent village people and force them into rental property.
Government and big business along with big labor will solve all of society's social ills.
Effect on derivatives? Anyone?
Effects on derivates? LOL. The only thing people cared about in CMBS derivative land the last week is the recent tax change that doesn't penalize mods. People have been doing these mods for months now so I don't know why that should be important at all. Just more pretend and extend.
If Moody's figures are in the ballpark, here who's screwed:
http://www.cggc.duke.edu/pdfs/RealEstate/CGGC_EDFRealEstateFinalReport_0...
As of April 22, 2008, the companies with the largest interests in CRE
1) AIG $1.132 trillion (yes, that's trillion) <-Toast
2) Fannie Mae $45.3 billion <-Toast
3) Freddie Mac $44 billion <-Toast
4) Goldman Sachs $37.7 billion
Depreciating AIG's CRE assets by 38.7% calculates to an asset value loss of $438 billion. Do you think the American taxpayers are getting their money back any time soon?
And if GS hasn't managed to already sell much of their CRE interests to the all-too-obliging Fed, even at 10:1 leveraging, they are currently insolvent.
And according to Standard and Poors, as of December 31, 2007, the total value of CRE in the United States was $5.3 trillion. Knock off 38.7% and you're looking at an asset valuation loss of 2.05 trillion.
http://www2.standardandpoors.com/spf/pdf/index/SP_GRA_Commercial_Real_Es...
Reading that actually put a smile on my face.
Highly overvalued at a 38.7% haircut.
None of the CRE has been put to the test of finding a buyer. Every holder is hanging to avoid a writedown. I mean holding CRE for about ten years without any tenant? What is that?
Really what the idiots in power at the Fed or treasury do not realize is that holding up CRE values is stifling recovery. All of those properties not renting out are keeping businesses from forming because they are trying to hold up rents to far too high a value. They are stealing money from the taxpayers to keep the loans afloat, and the more money poured into CRE, the longer the delay in recovery.
A vicious cycle of pouring money into something that will stifle any chance of the loans being paid back.
GAO said today a full payback to the taxpayer by AIG looks " remote ". I'd say ANY payback looks impossible.
I just wonder how much of this CRE shit is sitting on the books of pension funds at full value. No way they stayed out of the CRE investment orgy. They were all chasing the MoMo !!
Your point about pension funds and CRE is on the mark.
First off, only a pension fund could hold a non performing property for 10 years or so. So this stuff is hiding.
Second, since a lot of state and local governments are in distress, personnel retirements are accelerating, creating a time compression of retirement claims. This can create a rush to the door by retirees, creating yet another liquidity crisis that could dwarf the subprime and altA home mortgage defaults.
Who will buy the CRE when everyone retires and there is no greater fool to sell the property to?
cant you see the green shoots?