Commercial real estate still stalled
One by one, the sellers are coming around, mostly because they have no choice. And bit by bit, the buyers are corralling capital to go sifting through the Gold Coast”™s enviable stretch of commercial properties.
Even as Greenwich-based Starwood Capital Group created an $800 million real-estate investment trust to buy commercial real estate, there were other multiple signals in August that the long-frozen office, retail and industrial market might finally move heading into the fall.
“Most of the high-quality retail stuff in Greenwich, New Canaan and Westport ”“ those are all owned by old, traditional Fairfield County or New York families,” said Jon Sabrowski, an investment sales broker in the Stamford office of FirstService Williams. “You have old money which never got overleveraged (and) never got in a position where they had to sell.”
A just-released index illustrates the increasing pressure commercial real estate owners are feeling nationally. Commercial mortgage payments overdue at least 90 days increased 17 percent between June and July, according to Realpoint L.L.C., a Horsham, Pa.-based ratings firm that analyzes commercial mortgage-backed securities. The majority of those overdue payments were for buildings bought in 2006 and 2007 at the height of the last economic boom, presumably buildings whose lease income has not kept pace with projections made at the time of purchase.
That could force some building owners to cut their losses and find a buyer at a reduced rate for some of their holdings ”“ provided the debt markets are sufficiently recovered to support such transactions.
Through May, a national commercial real estate price index maintained by Moody”™s and Real Estate Analytics L.L.C. (REAL) dropped 1 percent between April and May, leaving it 27 percent off its level a year ago and 36 percent from two years previous.
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Market transactions increased 25 percent in June, however, and after declining 19 percent in the first quarter, national office values saw a small uptick in prices in the second quarter. At 4 percent, it was the only class of building to see a rise.
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In the East, offices remain the worst-performing sector in commercial real estate, with prices down 27 percent from a year ago compared with 12 percent for apartment buildings, 16 percent for industrial buildings and 22 percent for retail centers.
“This month is not unexpectedly bad news like the two previous months,” said Neal Elkin, president of REAL, in a statement. “It could signal the beginning of a gradual tapering of the decline, the beginning of the final stage of the price correction from the lofty bubble of two years ago.”
The question becomes whether an expected wave of investors looking to cherry pick properties on the cheap will materialize to any degree in Fairfield County. Long a fixture on New York City-based Real Capital Analytics”™ list of the 10 most active buyers of commercial properties, the Norwalk-based GE Capital Real Estate division of General Electric Co. does not appear on that list ”“ a possible signal that GE thinks things could drop farther. GE lists about 30 properties nationally for sale.
“I think we are probably going to see some kind of distressed situation in the second half of 2010 and heading into 2011; the few buildings that were financed to the hilt will start coming due,” Sabrowski said. “The other thing is this: buyers have to realize that when all this distressed stuff hits the market, they are going to be in competition with all the others.”
Bit by bit, that is bringing some old friends back to the table.
“In the past few weeks, I am seeing the return of clients I haven”™t heard from in six or seven years, buyers that are starting to figure we”™ve hit bottom in valuations,” Sabrowski said.