U.S. commercial real estate prices fell 3.3% in August from a month earlier, putting prices at 2002 levels after a third straight month of declines, Moody's Investors Service said Tuesday.
Prices for office buildings, shopping centers and apartment complexes are now down 45% from their late-2007 peak, said Moody's. Rental demand has diminished, shrinking properties' cash flow, while a tighter financing market has restricted investors' ability to inflate their returns using leverage.
"The commercial real estate market in the U.S. has become trifurcated with prices rising for performing trophy assets located in major markets, falling sharply for distressed assets and remaining essentially flat for smaller healthy properties," Moody's managing director Nick Levidy said Tuesday.
The dollar amount of repeat-sale transactions in August rose 37% from a month earlier, according to Moody's. Nevertheless, the number of repeat sales remains significantly below levels seen during the peak.
Moody's price readings have been at odds with Green Street Advisors, a Newport Beach, Calif., firm that closely tracks real-estate investment trusts. Green Street has been saying prices of commercial real estate hit bottom in mid 2009 and have been slowly rising ever since.
Both Green Street and Moody's base their forecasts largely on price indexes they developed internally.
Moody's tracks all property sales of $2.5 million and more, looking only at transactions that have closed. In addition, the index is equally weighted and focused on so-called repeat sales, where the sale price of a building is compared to the price it fetched from the previous buyer.
In contrast, Green Street's index tracks 47 REITs with roughly $400 billion in assets. The index reflects the valuations assigned to the REIT portfolios formed by input from brokers, economists and company executives. The index relies less on repeat sales but does take into account most property deals, and more weight is given to large trades.
