U.S. Commercial Property Prices Increased 6.3% in May, Moody’s Says


21 July  2011

U.S. commercial property prices increased in May for the first time in six months as a rebound in distressed real estate helped boost values, according to Moody’s Investors Service.

The Moody’s/REAL Commercial Property Price Index rose 6.3 percent from April, the largest gain since the measure began in 2000. It’s down 11 percent from a year earlier and 46 percent below the peak of October 2007, the company said today.

The index, which measures broad price trends, had fallen to a record low in April as sales of distressed properties undermined real estate values. Distressed deals in May began contributing to rather than delaying a price recovery, according to the Moody’s report.

“A number of transactions that were recorded in May had their most recent prior sales in 2009 as the market was beginning to bottom and subsequently traded for substantial returns,” Tad Philipp, director of commercial real estate research at Moody’s, said in a separate statement. “We are likely to see a pickup in post-peak repeat sales and expect such transactions to play an important role in helping drive the CPPI higher.”

The index tracks repeat sales, which totaled 174 in May. About 27 percent of deals involved distressed properties, which Moody’s defines as assets in which a default, foreclosure proceeding or bankruptcy of the owner has occurred. The share was down from 30 percent in April. The dollar volume of repeat sales of all properties jumped 33 percent, Moody’s said.

CoStar Report

CoStar Group Inc. (CSGP) also reported rising prices in May. Values of investment-grade commercial properties in the U.S. rose 4.4 percent from the previous month and 5 percent from a year earlier, the Washington-based data company said July 13. Prices were down 35 percent from the peak of August 2007.

CoStar, unlike Moody’s, tracks transactions of less than $2.5 million. The company’s measure of values for all commercial properties rose 1.6 percent from April. It is down 6.8 percent from a year earlier and 34 percent from its highest point.

The dollar volume of sales increased along with the average transaction size, CoStar said in its report. Investment-grade deals averaged $33.2 million in May, almost double April’s $16.9 million.

Green Street Advisors Inc., a real estate research company in Newport Beach, California, reported commercial property values were little changed in June from the previous month and up 20 percent from a year earlier. Prices are down 10 percent from their peak, the company said July 7.

Green Street’s index is weighted by asset value and includes deals that are in negotiation or under contract. Moody’s tracks completed sales, which are equally weighted in calculating the index.