US commercial property prices fall close to bottom, according to analysts
Prices in the US commercial property sector are down to nearly half the levels seen at the height of the real estate boom and delinquency rates have doubled, according to the latest index from Moody’s.
National property prices on commercial real estate dropped 9.1% in June from last year, the Moody’s commercial property price index shows. 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'’ bases the index on the dollar volume of repeat sales transactions in commercial real estate. Analysts reported $2.1 billion of these transactions in June, up from $1.5 billion in May and $800 million 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. If this is in fact occurring, we would expect transaction volumes to rise steadily and price volatility to ebb in the months to come,’ he explained.
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 is 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 $60.8 billion in July. While it did increase $387.9 million from the previous month it is still nearly 90% below the previous six monthly average of $3.14 billion 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 $49 billion in July. The figure has alsomst tripled in the last 12 months and is 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.
With the drop in prices and the continued increase in delinquencies on existing loans, those on the servicing side are seeing places to stretch their business.
Cathy Marquardt, the new associate vice president of commercial servicing at the Mortage Bankers Association (MBA), said that while existing commercial loan sedrvicers are seeing increased levels of default, the future remains uncertain.
‘On a more macro level, the key challenge is managing P&L (profits and losses) and resources in light of the uncertainty in the market and the lack of clarity about what the industry will look like in the future,’ Marquardt said.