The freefall in commercial property prices may be nearing an end, says Ed Kearney of the Florida commercial real estate brokerage firm (http://www.svnpalmbeach.com/about.shtml) Kearney Commercial Realty/Sperry Van Ness. And while improvement is likely a year or two away, the pace of declines may be less dramatic than it was in 2008 and 2009.
“While it might not seem like good news, the latest figures on commercial property prices suggest that the real estate market is stabilizing,” said Kearney, referring to Moody’s/REAL Commercial Property Price Index.
That index dropped 1.5 percent in October to 107.98 from 109.61 in September. Moody’s estimates that prices for commercial real estate were 36.4 percent lower in October 2009 than a year earlier and 43.7 percent below the peak in October 2007.
Matthew Anderson, a partner at Foresight Analytics LLC in Oakland, Calif., told Bloomberg that he thought the size of the declines moving forward was going to be smaller.
“I expect prices will level off at half of their peak value,” said Kearney. “Some types of property, such as retail, might go lower. We have a mall in West Palm Beach that is essentially shutting down and a lifestyle center in Palm Beach Gardens that recently sold for one-fifth of its previous price. Some shopping centers are half empty.”
The Palm Beach market is suffering because the unemployment rate continues to rise, hitting 11.7 percent in November 2009. And home prices are going down, reaching levels in November 2009 not seen in the previous six years. Couple those factors with bank foreclosures on all types of properties and commercial real estate has been hammered, Kearney said.
The state of the market will also depend on whether lenders will refinance an estimated $1.4 trillion of commercial real estate debt nationwide that is scheduled to mature over the next five years. Some of that property is worth less than the mortgage and therefore could face foreclosure. At some properties, rents have declined to the point where owners can no longer afford monthly payments.
“The banks can make a big different in just how fast we will get out of this downward price spiral,” said Kearney, who is managing partner Kearney Commercial Realty/Sperry Van Ness. “If they are in a position to work with borrowers, we could see fewer foreclosures, which would help stabilize prices.”
Delinquencies for commercial real estate mortgages held by banks may rise to 5.6 percent in the fourth quarter and reach as much as 8 percent next year, according to Moody’s.
About Edward Kearney and Sperry Van Ness
Edward Kearney is managing director of Kearney Commercial Realty Inc./Sperry Van Ness with an extensive background in various aspects of commercial real estate including investment analysis, landlord and tenant representation, and property tax abatement. SVN is a leading national brokerage firm that markets commercial real estate properties to an investment and brokerage community of more than 100,000. Kearney welcomes investors, brokers, and others with an interest in the Florida commercial real estate market to contact him today by calling 561-616-6262, or visiting http://www.svnpalmbeach.com for more information about the services he provides.
For more information about Edward Kearney and Kearney Commercial Realty Inc./Sperry Van Ness, please visit http://www.svnpalmbeach.com.