U.S. Commercial Property Deals May Slow, Inland’s Cosenza Says
July 29, 2010, 12:35 PM EDTBy Brian Louis
July 21 (Bloomberg) -- U.S. commercial real estate purchases may slump later this year as prices rise and lenders require buyers to put more cash into deals, said Inland Real Estate Group Inc. Vice Chairman Joe Cosenza.
A “double-dip” in the commercial real estate market may come as soon as September when lenders “start seeing these high prices and say, ‘Wait a minute, we just came through this,” Cosenza said today in an interview at Bloomberg LP’s Chicago office.
The Moody’s/REAL Commercial Property Price Index climbed 3.6 percent in May, Moody’s Investors Service said in a July 19 report. The index has rebounded 8.6 percent since October 2009 as competition for properties increased, though it remains 39 percent below its 2007 peak.
Cosenza, president of Inland Real Estate Acquisitions Inc., predicted banks will reduce the share of debt they contribute to purchases and “that’s going to back up a lot of deals,” he said.
Capitalization rates, a measure of real estate returns, likely will increase as a result, said Cosenza, 66. The so- called cap rate is a property’s net operating income divided by its purchase price. Falling prices push cap rates higher.
“I think you’re going to see a backlash,” Cosenza said.
Inland and its affiliates bought about $3 billion of property since 2009, mostly shopping centers, according to company figures.
Sales Plunge
Commercial real estate sales fell 67 percent to $44 billion in 2009 from a year earlier, according to New York- based real estate research company Real Capital Analytics.
Sales rebounded 58 percent to $34.2 billion in the first half of 2010 compared with the year-earlier period, according to preliminary figures from Real Capital.
Cap rates for commercial real estate are at 7 percent to 7.5 percent, down from 9.5 percent to 10 percent in the first five months of 2009, Cosenza said.
“I haven’t seen cap rates that high for years, maybe dating back to 1999,” he said.
“Most people were frozen in their tracks and sat on their hands,” he said. “It was an opportunity you should never miss.”
Cosenza predicted cap rates may settle in at 7.5 percent to 8.25 percent later this year. At those rates, “I would buy as much as I could get my hands on,” he said.
Inland Real Estate Group’s companies include Inland Real Estate Corp., a publicly traded real estate investment trust. The group’s other companies include Inland Western Retail Real Estate Trust Inc., Inland American Real Estate Trust Inc. and Inland Diversified Real Estate Trust Inc.
--Editors: Sharon L. Lynch, Larry Edelman
To contact the reporter on this story: Brian Louis in Chicago at blouis1@bloomberg.net.
To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net.
