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Saturday, September 4, 2010 |
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| Month in Review: Mixed Signals as Market Bounces Along the Bottom |
REAL CAPITAL ANALYTICS |
May 20, 2010
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April sales volume of $4.2 billion compares well to the $2.5 billion of sales recorded a year ago, but is lower than the monthly average of $5.5 billion over the past six months. Broken down by property type, investment trends are also mixed. The office and hotel sectors are poised for significant activity this quarter. Meanwhile, the apartment sector appears to be cooling slightly. Both the industrial and retail sectors have been stable, yet relatively weak compared to the other sectors.
With $42.2 billion of new property offerings recorded so far this year, compared with $19.6 billion of closed sales, buyers should have found plenty of opportunities to pursue. Yet investors seeking either distressed assets or prime, core properties would argue otherwise. Capital is currently concentrated on properties that meet certain profiles, such as well-leased office; mid/high-rise apartments in major markets; or distressed property at a significant discount anywhere. This somewhat narrow investment scope has resulted in significant competition for high quality assets, though they are not abundantly available. There is correspondingly little interest in those assets that do not match investors’ criteria, though these assets are often in plentiful supply. The resulting imbalance between assets on the market and deals being consummated is yet another of the many mixed signals coming out of the post-crisis market.
A year ago, sales volume was at its low, reflecting a wide pricing gap between buyers and sellers. Sellers well outnumbered buyers, but the large gap in their pricing expectations kept all but a few deals from completion. While this gap in price expectations has narrowed somewhat, there is now a mis-alignment of the types of properties buyers want versus what sellers have chosen – or been forced – to offer for sale. Sellers are keeping most distressed assets from the market, and few are willing to part with their better assets. So far, bank lenders have taken a similar approach.
These trends are captured in the latest Moody’s/REAL CPPI, which also reflects a market bouncing sideways along a pricing bottom, as well as mixed signals for each of the property types. The National All Property Type Aggregate Index fell modestly for the second straight month, dropping 0.5% and marking a 2.1% decline for Q1’10, but still 2.9% ahead of the market bottom reached in October 2009. For Q1, prices of apartment and industrial properties were up, but fell for office and retail.
Even the anemic pace and pricing of distressed-asset sales continue to weigh on the market: the CPPI would have been slightly positive for the month if distressed-asset sales were excluded. The near-term negatives do not suggest a renewed downturn, but rather indicate that the robust pricing some trophy assets are commanding has not broken through to the broader market.
Data subject to future revision; based on properties & portfolios $5 mil and greater.
©2010 Real Capital Analytics Inc. All rights reserved.
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