Tags: Fed | commercial | property | prices

Commercial Property Prices Fall as Borrowing Costs Increase

Tuesday, 06 Aug 2013 01:20 PM

U.S. commercial property prices fell 1 percent in July from the previous month as rising interest rates increased the cost of financing deals, according to real estate research firm Green Street Advisors Inc.

The Green Street Commercial Property Price Index was 4 percent higher than a peak reached in August 2007 even with the decline, the Newport Beach, California-based company said today in a report. The gauge is based on Green Street’s estimate of the value of real estate investment trust portfolios, which tend to have high-quality properties.

“Property values have enjoyed a robust recovery over the last four years, more than recouping all the ground that was lost during the financial crisis,” the firm said in its report. “That recovery has been put on hold for the time being as increases in interest rates weigh on pricing.”

A surge in interest rates since May threatens to damp demand for commercial real estate. The yield on the 10-year Treasury note has climbed to 2.66 percent from a low of 1.63 percent in May, fueled by expectations that the Federal Reserve will scale back the pace of its stimulus plan.

The Fed is buying $45 billion of Treasurys and $40 billion of mortgage debt each month to put downward pressure on interest rates, including as much as $5.75 billion in Treasurys maturing between May 2018 and April 2019.

The Moody’s/Real Capital Analytics national all-property index fell 0.6 percent in May from April, Moody’s Investors Service said on July 10. The measure, which was up 6 percent from a year earlier, is based on repeat-sale transactions that take place two calendar months before the latest report.

“The results do not yet fully reflect the impact on prices of the recent uptick in the 10-year Treasury,” Moody’s said in the report. “We expect prices over the near term to remain flat or decline, as improvements in occupancy and rent arising from increased employment lag the drag on value resulting from higher borrowing costs.”

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U.S. commercial property prices fell 1 percent in July from the previous month as rising interest rates increased the cost of financing deals, according to real estate research firm Green Street Advisors Inc.
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2013-20-06
Tuesday, 06 Aug 2013 01:20 PM
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