Commercial poised to fall?

From Bloomberg:

Commercial Real Estate in U.S. Poised for 15 Percent Price Drop

U.S. commercial real estate prices may fall as much as 15 percent over the next year in the broadest decline since the 2001 recession as rising borrowing costs force property owners to accept less or postpone sales.

“People aren’t willing to do deals right now,” said Howard Michaels, the New York-based chairman of Carlton Advisory Services Inc., which has arranged financing for real estate purchases including the Lipstick Building in midtown Manhattan. “The expectation is that prices will come down.”

Investors in July bought the fewest commercial properties since August 2006 and apartment building acquisitions were down 50 percent from June, data compiled by industry consultants at New York-based Real Capital Analytics Inc. show. Archstone-Smith Trust in August postponed its $13.5 billion sale to a group led by Tishman Speyer Properties LP until October. Mission West Properties Inc., the owner of commercial buildings in Silicon Valley, said on Aug. 13 that the company’s $1.8 billion sale may fail after a bank withdrew funding.

“There are so many deals falling apart,” said David Lichtenstein, chief executive officer of Lakewood, New Jersey- based Lightstone Group, an owner of more than 20,000 apartments and 30 million square feet of office and retail space. “People who can get out are getting out.”
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About 930 commercial real estate transactions valued at $5 million or more closed in July, preliminary data from Real Capital show. That count could climb as much as 15 percent when all of the month’s deals are tallied, which would still be the lowest this year, said Dan Fasulo, director of market analysis for Real Capital.

Average prices for commercial properties might drop 5 percent to 15 percent in the next two years depending on the type of property and its quality and location, said Matthew Ostrower, an industry analyst at New York-based Morgan Stanley, the second-largest U.S. securities firm by market value.

Commercial mortgage rates have climbed as defaults rose in the subprime part of the residential real estate market. About six months ago, a 30-year commercial loan with 5 to 10 years of interest-only payments would have cost the borrower about 120 basis points more than the yield of the 10-year Treasury note. A similar loan would now cost about 160 to 200 basis points more than the 10-year Treasury’s yield of 4.6 percent, data compiled by New York-based Cushman & Wakefield Sonnenblick Goldman show.