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Moody's Reports That February Commercial Real Estate Prices Are Again Heading Lower
In the rush over Goldman coverage and volcanic news, a very relevant piece of market update may have gotten lost, namely that Moody’s/REAL All Property Type Aggregate Index just peaked once again. Moody's reports that this index "measured a 2.6% price decline in commercial properties in February. This decrease comes on the heels of three consecutive months of rising prices, and brings the level of commercial property prices 41.8% below the peak measured in October 2007. Values are now down 25.8% from a year ago, and 41.6% from two years ago." This is the first time prices have fallen since October of last year: have we just hit price resistance in CRE?
The chart below shows the month over month change in prices.
A useful observation from Moody's: "The share of distressed sales in the repeat-sales transaction database has increased significantly over the last year. In early 2009, less than 20% of repeat-sales were identified as distressed. In February of this year, that proportion reached nearly one-third."
Moody's provides this explanation for why prices have plateaued:
The price increases which began in November 2009 may have been due in part to the bifurcation of the market between high and low quality properties. While interest in high quality properties appears to be picking up, transaction activity in the core of the commercial real estate market remains muted. Also, it is interesting to note that distressed sales dipped in the three months that showed an increase in prices, and this month’s jump in distressed sales to the highest level in over three years no doubt contributed to the current price decline. The high-low split in the market, together with the effect of distressed sales on overall price levels, will likely cause markets to bounce up and down over the near term. We do not expect prices to establish a clear trend until volume picks up and market-clearing prices are established for distressed properties.
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Green shoot - DJIA +150
I say + 300. Why not shoot for the sun (instead of the moon) ? And get burned in the process of course. Our bankers love that it seems.
Far East markets down lots, Europe down, US? No chance, as usual the gunning of any shorts who dared got hit
No doubt the lobbyists for the NAR will be waving this in the face of congress as moral justification for QE2
that is another clear bottom. RALLY!!!
Well, it couldn't be due to the the severe weather aka snow now, could it?
There will be no clear trend until the Government-and-Fed stops screwing around with vague present-and-future-promises to buy this crap at above-market-value.
Then, there will be a clear trend: Crash, big-time, as we realize that NONE of these REITs were ever designed to be positive-in-return, and that was BEFORE the economy slowed, and BEFORE rents fell.
These things are so out-of-the-money it's silly: Massive failures to roll debt between now and 2012. The only hope in pretending REITs are viable is through continuing the accounting fraud, and the taxpayer continuing to provide blank checks.
Wow, holy cow! In the good old days a 10% to 20% move down would have been called a "crash", now that is impressive.
Sounds like another rally in CRE
A 42% dump in peak to present CRE pricing is bound to produce a lot of dead bodies.
King Kash Flow wields his mighty sword. He ain't done yet.
Been in DRV since post labor day - have come to the conclusion there are trillions of dollars of fed money that will be poured into this market until is shows signs of life...considering my losses as a victim of a hold up...only 2 possible outcomes at this point:
1. Death of the market
2. Death of the dollar
As I've said before, I will ride my SRS shares down to zero if I have to.
Then I will buy every single share in existence.
The numbers are BS anyway due to the volume of transactions being down 80-90% from the peak and with no financing in sight, any cash flowing deals are being held by owner or bank rather than face the buzz-saw of all cash buyers. The market is broken and my portfolio of shopping centers is like a lead weight around my neck, but everyone is still afloat..for now
I have been short REIT,s -- what the hell!! how do you let the market know that CRE is shit. I am in Florida, if you want CRE, most banks will sell nonperforming loans at 30 cents on the dollar.
Had a new ( I built ) office building, the bank and I lost 1/2 cost of sticks and bricks. From my perspective, by December CRE down 65 - 80%. I have been in RE since 1964, I would not pay 10 cents on dollar. I know how much it cost to carry a dead asset.
To be honest, I think this should have been expected given the increasing aggressiveness of CRE lenders. Spreads have come in and the available leverage has gone up over the last 4-6 months. Owners who need to sell are sensing that it's a good time to do so. The Moody's REAL CPPI is a paired-trade index, so anything that sells which was bought over the last 4-5 years is showing price drops bigtime.
Around 18 months ago, I got a copy of a fresh DeutscheBank CRE market write-up, in which they called for US CRE values to drop 40%. I couldn't believe it would come to pass, but it sho' nuff did! And now all these regional bank stocks are on the rise, whilst these banks sit there with big portfolios of underwater CRE loans. Thanks to us taxpayers I guess, huh? And our descendants, and their descendants...