Bloomberg News

Commercial Property Prices Rose 0.9% in June, Moody’s Says

August 22, 2011

(Updates with comment from Moody’s in third paragraph.)

Aug. 22 (Bloomberg) -- U.S. commercial property prices rose 0.9 percent in June, the second straight monthly gain, as buyers increased purchases in smaller cities in search of higher returns, according to Moody’s Investors Service.

The index, which measures broad price trends, is down 6.6 percent from a year earlier and 45 percent below the peak of October 2007, the company said in a report today.

The increase represents a “firming up” of the market bottom as investors moved beyond trophy properties and major U.S. coastal cities, Moody’s said. Turmoil in capital markets and a recent drop-off in lending of commercial mortgage backed securities may delay “significant” near-term price increases, according to the report.

Europe’s debt crisis, signs the U.S. will remain mired in sluggish growth through next year and the Standard & Poor’s downgrade of the nation’s credit rating roiled financial markets and triggered a selloff in securities linked to debt on commercial real estate. Wall Street firms are ratcheting back originating new commercial-property loans to package for sale, making it harder for banks to gauge how much cash they will recoup in bond sales and boosting rates for borrowers.

Sluggish Growth

The Moody’s index tracks repeat sales, which totaled 254 in June. The result reflects deals that came before economic reports issued in July and August showed growth is slowing and unemployment remained at more than 9 percent, which may reduce transactions and push down prices.

The U.S. economy grew at a 1.3 percent annual rate in the second quarter after a 0.4 percent gain in the prior three months that was less than earlier estimated, Commerce Department figures showed July 29. Consumer spending from April through June had its smallest gain since the second quarter of 2009, when the economy was in recession.

CoStar Group Inc.’s National All Property Type Composite Index climbed 2.2 percent from May, the second straight month that measure gained, the Washington-based real estate data provider said Aug. 10. The index was down 1.5 percent from a year earlier and is 33 percent below a peak reached in 2007.

Green Street Advisors Inc., a real estate research company in Newport Beach, California, reported commercial property values were unchanged in July from the previous month and up 18 percent from a year earlier. Prices are down 10 percent from their peak, the company said Aug. 4.

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.

--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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