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Sunday, September 5, 2010 |
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| Month In Review: Sales Volume Holds; Pricing Trends Clouded by Distress |
By US Capital Trends |
REAL CAPITAL ANALYTICS |
June 25, 2010
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May sales volume was in line with the rising year-over-year trend established early in 2010, yet the bifurcating market continued to bounce sideways along the market's pricing bottom, as noted in our April Month in Review. This was abundantly clear in the Moody’s/REAL Commercial Property Price Index results for April, which showed prices continuing to diverge widely based on asset quality, location and occupancy as well as on distress level. In May, new inflows of distress totaled $12.6 billion including properties in foreclosure, default, or bankruptcy, far exceeding May sales volume.
Sales of significant multifamily and commercial properties totaled $5.1 billion in May, a 50.5% increase from a year earlier and on par with the 2010 monthly average of $5.1 billion. Sales volume of $25.3 billion for 2010 through the end of May was 56.0% higher than for the same period last year. As described in the property sectors analyses, year-over-year sales volume increased in the office, apartment, and hotel sectors, but declined for retail and industrial assets, both in terms of dollar volume and the count of properties.
While, the volume of closed sales in 2010 is outpacing the improvement in sales in 2009, year-to-date new offerings have slipped from last year’s levels. Following a lull in the second half of last year, however, new offerings have accelerated, outpacing closings in each month of 2010. Year-to-date through May, new offerings have reached $53.3 billion, 49.5% of last year’s total and more than double year-to-date closings.
When looking at the Moody's/REAL Commercial Property Price Index, prices rose overall by 1.7% from March to April. But this increase masked the underlying variation across distress and non-distressed sales, for which the index jumped by 6.3%, against a 5.7% drop for sales resolving distress. The diverging market cut across all property types, but was most pronounced in the office sector, where occupancy rates average 85.1% for non-distressed sales and just 58.3% for sales out of distress. Meanwhile a third pricing trend encompassing the vast quantity of properties on the market – many in secondary and tertiary markets that have yet to develop momentum in sales – is still emerging.
Additions to distress spiked following last September’s changes to IRS rules governing CMBS modifications and last October’s Loan Workout Guidance for bank lenders, but have been climbing in each month of 2010. In both April and May, additions to distress exceeded both closed sales and new offerings. As described in the office sector overview, however, the transfer of $4.9 billion in currently performing debt related to the Blackstone’s acquisition of Equity Office Properties assets in 2007 – which does not include another $2.1 billion in mezzanine debt – accounts for almost 40.0% of new distress in May. If this transfer was excluded, additions to distress would have declined across all property sectors with the exception of apartments.
Link to original content with graphs: http://bit.ly/ce4C94
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