Bloomberg News

U.S. Commercial Property Prices Fell in April, Moody’s Says

June 22, 2011

(Updates with comment from statement in fourth paragraph.)

June 22 (Bloomberg) -- U.S. commercial property prices fell in April as sales of distressed assets made up a large share of transactions, according to Moody’s Investors Service.

The Moody’s/REAL Commercial Property Price Index dropped 3.7 percent from March and 13 percent from a year earlier. It’s now 49 percent below the peak of October 2007 and at its lowest point in data going back to December 2000, the company said in a report today.

The index, which measures broad national price trends, has fallen for five straight months as sales of distressed properties undermined real estate values. Investor demand is strongest for well-leased buildings in major markets such as New York and Washington, which are viewed as less risky in a sluggish economy.

“In a case of the strong getting stronger and the weak getting weaker, major asset/major market prices have recovered more than half of their post-peak losses, while prices for distressed transactions continue to bounce around the bottom,” Moody’s said in the report.

New York office prices jumped 24 percent in the first quarter from a year earlier. Office values in San Francisco increased 9.6 percent, and Washington had a 6.1 percent gain.

Distressed Properties

Almost 30 percent of transactions in April involved distressed properties, which Moody’s defines as assets in which a default, foreclosure proceeding or bankruptcy of the owner has occurred. It was the 17th consecutive month in which the share of distressed deals was at least 20 percent.

The index tracks repeat sales, which totaled 175 in April, the third-highest number since September 2008.

“The uptick in transaction volume helps set the stage for a meaningful broad recovery in the U.S. commercial real estate market,” Moody’s said.

Green Street Advisors Inc., a real estate research company in Newport Beach, California, reported rising prices in May. Commercial property values increased 3 percent from the previous month and 21 percent from a year earlier, the company said June 6. Prices are down 10 percent from the August 2007 peak.

Green Street’s index is weighted by asset value and includes deals that are in negotiation or under contract. Moody’s tracks completed sales, which are equally weighted in calculating the index.

Prices for investment-grade properties in the U.S. declined 5.3 percent in April from the previous month, CoStar Group Inc., a real estate data service based in Washington, said June 8. Values were down 44 percent from their peak, according to the company.

CoStar, unlike Moody’s, tracks transactions of less than $2.5 million.

--Editors: Christine Maurus, Daniel Taub

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


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