David Simon, CEO of Simon Property Group, the country’s biggest mall owner, says commercial real estate prices are unlikely to rebound beyond the prices of 2003 and 2004 levels.
That would represent a decline of as much as 23 percent from current prices, Bloomberg reports.
“There is still a decent bid-and-ask difference between the buyer and the seller,” Simon told Bloomberg.
“I think the sellers’ expectations certainly have gone down from where we were at the end of ’07, early part of ’08.” Prices may go “back to the ’03, ’04 period of time, somewhere in that range.”
Sales of U.S. retail properties plunged 71 percent in the first half of the year, according to Real Capital Analytics.
Sellers no longer demand prices amounting to 20 times a mall’s cash flow, Simon said.
“I think those days are over. Yet are they willing to sell it at 12 times, and are we willing to part with our capital at 12 times? That’s the rub.”
Bloomberg reports that 120 regional U.S. malls sold in 2003, with an average price of $123 a square foot, compared to only four this year at $159 a foot, according to Real Capital Analytics.
Mid-size banks may become the biggest victim.
“The most vulnerable segment of banks” is institutions with $10 billion to $100 billion in assets, writes financial journalist Alain Sherter on Bnet.com.
“That’s because these banks typically have a higher concentration of CRE loans on their books than, say, residential mortgages.”
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