Home > Uncategorized > Foreclosures aren’t just for the Residential Sector

Foreclosures aren’t just for the Residential Sector

images1 Foreclosures arent just for the Residential Sector

A recent article from Minneapolis’ Star Tribune tells an important side of the real estate story that has gone relatively under reported: the impact of foreclosures on the commercial real estate market. For the most part it is easy to understand why this angle hasn’t caught as much traction. Besides basic utility value (shelter), primary homes are said to carry certain psychological values, including  a sense of security, pride, etc.It stands to reason therefore–and at least the most accepted theory in academic circles–that involuntary dislocation (i.e. foreclosure actions) from ones’ home can have profound emotional effects. For whatever reason, these type of thoughts are simply not applied with the same force for commercial real estate. Nevertheless, commercial real estate foreclosures merit discussion.

The article notes that “the percentage of sales involving distressed assets went up in March,” though this doesn’t seem to be the most important point.   The more important point lies with a further breakdown of the data, which involves sorting by property type. There, the largest source of distressed properties lie in hospitality with “42.6 percent, followed by office at 35 percent, retail at 30 percent, industrial at 28.4 percent and multifamily at 25.4 percent.” The practical effect is a mixture of unrealistic expectations (among buyers) and pessimistic attitudes (among sellers) that continue to deepen. In other words, a persistently wide bid/ask spread. At the very least though, are values slowly but surely trending upward?  Based on Moodys/REAL Commercial Property Price Index (CPPI), the answer appears to be no.

M Mth Natl 300x230 Foreclosures arent just for the Residential Sector

While its worth keeping in mind that the Moody’s “index tracks all property sales of $2.5 million or more, but only deals that have closed and that are repeat sales”–and therefore, by it’s very nature will likely obscure “higher valued” deals–it is somewhat discouraging that we are not seeing more positive same-property price changes.

Reprint from llenrock.com       Author: Matt Welter

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