Once flourishing commercial property sales are expected to hit their lowest point in almost two decades this year, and analysts say the growing loan default rate may significantly lower gains in real estate investment shares.
“There’s no real way to sugarcoat it,” Real Capital Analytics managing director Dan Fasulo told Bloomberg.
“A slowdown of this magnitude certainly hasn’t occurred since I’ve been in the business.”
“Some of the older folks in the industry I talk to said it has a similar feel to the early ‘90s, when transaction activity went to basically zero.”
The volume of office sales in the second quarter was 97 percent less than the market’s peak in the first three months of 2007, according to Real Capital, whose data indicates that only about $16 billion of sales for office buildings will complete by year’s end.
Moreover, fewer transactions make it more difficult for buyers and sellers to agree on prices, which in turn makes lenders less able to find the comparable transactions they need in order to evaluate loan worthiness.
Returns on office investments this year have been running almost 1 percent higher than for moderate-risk long-term corporate bonds.
Most commercial property mortgages made within the last few years are headed for default, says real estate financier Ethan Penner.
"For anything originated after 2005, the chances of those loans going into default are very high," Penner told The Dallas Morning News.
"A large majority of the loans originated in this period will ultimately go into default."
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