More than 1,000 LoopNet members completed our October 2009 poll on the Q4 commercial real estate market. Based on our findings, in the last three months respondents have grown slightly more pessimistic about the timing of recovery in transaction volumes; expect that prices will continue to fall relative to current levels; and believe that access to affordable debt financing is the largest barrier to a recovery. See the PowerPoint below for more details.
Timing
In our last survey, run in July 2009, a solid majority (66%) expected the volume of commercial real estate transactions to rebound in 2010 or earlier, while only 1/3 expected the recovery to wait until 2011 or later. In the Q4 survey, that number has decreased to just over 50%, while there has been a sharp increase (to 46%) in those expecting the recovery to wait until 2011 or later. Nearly 1 in 5 are expecting to wait until 2012 to see a recovery.
Timing
In our last survey, run in July 2009, a solid majority (66%) expected the volume of commercial real estate transactions to rebound in 2010 or earlier, while only 1/3 expected the recovery to wait until 2011 or later. In the Q4 survey, that number has decreased to just over 50%, while there has been a sharp increase (to 46%) in those expecting the recovery to wait until 2011 or later. Nearly 1 in 5 are expecting to wait until 2012 to see a recovery.
When cut by role, investors are slightly more pessimistic, with a median expectation of recovery timing that is approximately one quarter later than that of brokers or owners.
Pricing
Despite the declines in pricing seen over the past quarter, respondents’ expectations for future pricing declines remain almost unchanged from the last survey. At the beginning of Q3, 52% of respondents expected to see future declines of 11% or more. At the beginning of Q4, that number is 53%. This suggests that future expectations of cash flow and value have continued to deteriorate, preventing pricing from stabilizing even after the declines in Q3.
All three groups surveyed—investors, brokers and owners—expect pricing to drop. Owners are the most optimistic, with nearly 20% saying prices have already bottomed. While this may suggest some continuing issues with the bid-ask spread, the average expected price declines are within a few percentage points across all three groups.
Obstacles
All three groups cited access to debt financing as the most significant obstacle to completing transactions, but this reason was weighted significantly more heavily by brokers and owners than it was by investors. Investors, by contrast, were relatively more likely to pin the blame on asking prices being too high and uncertainty about future cash flows.
What are your impressions? Does this data match with your expectations? What are you seeing in your local markets? Please comment and let us know.
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4 comments - Post a Comment:
In my opinion this poll reflects the denial in the market today.
What would a recovery in 2010 or 2011 be based on? Most I talk to base the recovery on a hope of recovery, not any real data.
CMBS will be coming due up till 2015, Double digit unemployment, the fed is holding distressed properties off the market indefinately, banks are still failing. The dollar is at all time low as trillions were printed for the bailout. GDP figures (un-incentivised) was flat and even if we could sustain 3% growth, this did not help Japan over the last 20 years.
We are doing a great job of keeping ourselves in the comfort zone and pushing the inevitable into the future, but are we really in recovery or headed toward recovery. I think not.
There are hundreds of billions in committed funds waiting to pick up distressed properties or non-performing notes (Check out RIISnet.com), but REO's in commercial real estate and residential are not being released in any bulk.
I believe the recent stock market climbs are all based on smoke and mirrors for the most part. If you have been in the market you will have to agree it has been substantially bullish in some sectors, but this cannot last. I believe there is no V recovery or U recovery, but more a a W.
The obstacles to more transactions are mainly based on debt financing, this I believe. Also the market is still having a real hard time pricing itself and cash flow assumptions are very hard to make, but there is money out there and plenty of it for both unstable and stable assets. The problem is that letting go of current properties will result in losses to the owners; be it the private owner or the bank. And no one is ready to take the loss yet, but this too shall pass and if I am right this does not spell recovery. Let's not forget about the shadow market in residential that will or is affecting Multi-Family in some locations.
Not a doom and gloomer, just a realist. Hope I am wrong, but my partners and I have started a Distressed Assets Association in alliance with RISSnet and their ARGUS Software ADAPT Platform to try and help the market work out the distressed properties and notes. Our association hopes to be an information source that can make sense of the markets and possibities for recovery.
JW Najarian
Co-Founder
CRE Distressed Assets Association
http://www.CREDAA.com
JW Najarian - I concur completely. I could not have written it better myself.
Now, if you can just get the folks in Washington to understand that, and get them to stop interfering in the market, maybe we can start to work our way out of this mess. Of course, I'm not holding my breath for that one.
Judy Brown, Broker
Based on our interaction with developers in our region, these results seem to be pretty consistent. Serving the construction industry has been difficult during this downturn and we're hopeful that the number of projects continue to increase as we move through 2010.
I have seen a a rise in clients seeking alternative financing as conventional sources are not available or overly burdensome. One such financing source is utilitzing a nonrecourse loan against publicly traded stocks. One major advantage that clients find appealing is that financing is based strictly on the stock as collateral and no consideration or review is made of credit scores, financial documents, or tax returns. Since the loan uses stock as collateral a commercial real estate project will have no liens or loans against it. As a result, the project would never be in jeopardy of foreclosure and would allow future refinancing to pull additional funds out of the project. The interest rates are below prime (3-6%) and the repayment can be flexible with 3-10 year repayment terms and no payments for the first 3 years. The loan is nonrecourse so that at most the borrower would forfeit their stocks if they defaulted. Moreover, there are no margin calls if the stock's value drops below the value at which it was placed into collateral. Most appealing of all is that it funds in relatively record setting time compared to conventional sources - in as little as 72 hours. This type of financing has been around for awhile but is attracting a great deal of attention now with the difficulties in financing. The program offers a great solution for many investors and developers. If you have any questions or would like further information, please feel free to contact me at attorneymichelleechols@gmail.com.
MICHELLE DAUPHINAIS ECHOLS, ESQ.
Attorney and Counsellor at Law
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