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Mixed views on US commercial property prices

The Moody’s/REAL Commercial Property Price Index fell 4.2% from February and is now 47% below the peak of October 2007, Moody’s said its latest report.

But other reports indicate that commercial property values are rising although different indices record and measure prices in different ways so direct comparisons are not helpful. But all recent reports show values are well below peak and that there is little sign of much improvement.

The Moody’s national index has fallen for four straight months and analysts said that sales of distressed properties are hurting real estate values. Investor demand is strongest for well leased buildings in major markets such as New York and Washington DC as vacancy rates decline and the economy grows, it said.
The index ‘continues to bounce along the bottom as a large share of distressed transactions preclude a meaningful recovery of overall market prices,’ said Tad Philipp, Moody’s director of commercial real estate research. ‘Indeed, the post peak low in price has been reached in the same period as a post-peak high in distressed transactions has been recorded,’ he added.

So called trophy properties in New York, Washington DC, Boston, Chicago, Los Angeles and San Francisco are helping those markets avoid the drag caused by distressed asset sales nationwide, Moody’s reported.

Almost a third of all March transactions measured by Moody’s were considered distressed, meaning the properties’ owners faced foreclosure, had difficulty covering their mortgage payments or experienced other financial problems. It was the largest proportion of distressed property sales in the history of the index, Moody’s said.
Price increases for high profile properties in major markets ‘appear to have taken a breather, providing less of a positive effect on overall market results than it has in recent months,’ according to the report. Transactions involving such assets also fell, meaning that those properties that did sell were more likely to be troubled, Moody’s said.
Prices for investment grade properties in the US fell 4.9% in March from the previous month, according to a report from CoStar Group, a real estate data service based in Washington. Values were up 2.2% from March 2010 and down 38% from the peak in June 2007, the report said. CoStar, unlike Moody’s, tracks transactions of less than $2.5 million.
Meanwhile, Green Street Advisors, a real estate research company in California, reported rising prices in April. Commercial property values increased 2% from the previous month and 18% from a year earlier, and are down 13% from the August 2007 peak, the report said.
Green Street’s index includes deals that are in negotiation or under contract, and is weighted by asset value. Moody’s tracks completed sales.