Repost of May 25th Commercial Property Value Changes (spreadsheet is easier to view)

Nothing to the post changed. I simply uploaded an easier to view spreadsheet of the Estimated Percent Change in Value Since Acquisition.  

Following is an update on commercial real estate values across the country.  (For the full details of this refer to my post February 12, 2010).

MIT tracks prices from properties sold from the NCREIF database.  (National Council of Real Estate Investment Fiduciaries)  NCREIF basically consists of tax-exempt (retirement managed) real estate.  NCREIF generates a total property returns index (see the data links below).  These price changes vary across property types and across locations.   This data base includes 6,067 properties with an estimated market value of $233 billion as of Q1 2010.

Of course how much property values have declined is relative to the time of acquisition.  Using the MIT data, a grid comparing implied current values based on time of acquisition follow in the table.  It shows the estimated current change in value since the date of purchase as of Q1 2010 of income-producing real estate across multiple property types:

  • All
  • Apartments
  • Industrial
  • Office
  • Retail

These data would estimate, for example, that an apartment property purchased in the first quarter of 2003 is now worth 14.1 percent more than the purchase price.  A retail property bought in Q3 2007 is worth only 67.1 percent of the purchase price—i.e. down 32.9 percent in value.  And an industrial property bought in the third quarter of 2003 is probably worth today what it cost at the time of acquisition. 

The impact?  Limited refinancing capacity and lending on new purchases will continue to put pressure on commercial real estate values (from the glass half-empty perspective).  Yet prospective buyers have not seen opportunities like this since the late 1980s provided they bring significant equity to the table (the glass half full view).  Simply stated, this is the best buying opportunity for commercial real estate since 1988 and 1989.  Fortunes will be made by those who act. 

 And these depressed prices should give a rally cry to all property owners in “This is the time to vigorously appeal property taxes.”  And be aggressive!

Good news is that both multifamily and offices properties showed a gain in Q4 2007.   We are likely bouncing the bottom on commercial real estate prices.

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