Posted by Brian (NoCA) on October 21, 2009 at 19:42:58:
In Reply to: commercial real estate collapse posted by Sara_CA on October 20, 2009 at 13:36:14:
I work in the Northern California commercial real estate market. In my opinion the collapse has been happening for over a year now and while it is heavily tied to financing, it is not solely a lending problem. Capitalization rates have increased by an average of 200 basis points since their peak., largely because of financing issues. Those small strip centers that sold for 5% caps years ago are at least 6.5 to 7 now. The decrease in values from cap rates alone is staggering; however there is also not one market here that rental rates have remained steady, for any property type. Thus, values have declined an estimated 30% to 40% from their peak. Is it over? I don't know but there is certainly room for more trouble. There are an increasing number of examples where an investor has purchased an office building for say $300 psf in 2007, based on some (what now appear to be) outrageous pro-forma rent estimates. A similar property in the market has been taken back from the bank and purchased for $150 psf. The latter investor can offer his property for a significantly lower rental rate. Who do you think will ultimately survive? Only a matter of time before the $300 psf investor will fold, considering the amount of vacant space in most of these markets. This type of thing is happening all the time. Google Cupertino Square or the Gap Building in San Francisco for the most recent distressed transactions in the Bay Area this week alone. This, I believe, will continue to happen for quite some time.
That said, it might not be a bad time to buy, just make sure you fully understand the risks and that you are buying at a price that works for you, and that you have a realistic exit strategy (or two). Best of luck.
- Re: commercial real estate collapse KC 10:39:35 10/22/09 (0)