The Decline Continues for Commerical Real Estate--Moody's

It is shocking to see how far prices have fallen for commercial real estate. From Moody's:
US commercial real estate prices as measured by Moody's/REAL Commercial Property Price Indices (CPPI) decreased 3.1% in July, the second consecutive monthly decline of more than 3%.

Nationwide, prices are currently 43.2% below their peak in October 2007 and are only 0.9% above the recession low recorded in October 2009.

The CPPI has declined 7.3% in the past year, and dropped 35.9% in the past two years.

"Commercial real estate markets were caught in a downdraft as the economy appeared to further weaken in the early part of 2010, resulting in relatively large declines in the index in the early summer," said Moody's Managing Director Nick Levidy. "The recent performance, while perhaps somewhat discouraging, should not come as a complete surprise. We have noted for several months that markets are likely to remain choppy for some time as property values slowly form a bottom in conjunction with a gradual recovery of the broader economy."
The reason there have been so few bankruptcies is that banks are more than willing to restructure the debt to avoid taking meaningful write downs. Is is part of the extend and pretend strategy. The idea being that soon or later commercial real estate will recover and that will allow underwater property owners to eventually pay back their debts. Considering prices are now down 40%+ they may have to wait for a long time.

Black Swan Insights


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