matisse capital management

Predictions of a Commercial Property Crash

Wilbur Ross, billionaire investor and member of the Committee on Capital Markets Regulation, believes the US is at the beginning of a "huge crash in commercial real estate."  Will this necessitate the creation of another Resolution Trust Corporation by the government (RTC)?  You have to wonder.  From Bloomberg:

 “All of the components of real estate value are going in the wrong direction simultaneously,” said Ross, one of nine money managers participating in a government program to remove toxic assets from bank balance sheets. “Occupancy rates are going down. Rent rates are going down and the capitalization rate - the return that investors are demanding to buy a property - are going up.”

To anyone in the industry, this news comes as no surprise.  Also weighing in on this issue today was  George Soros:

Commercial Reat Estate Prices Take a Hit

July was tough for commercial real estate.   According to Moody's, its CPPI (Commercial Property Price Indices), which tracks data through sales transactions, commercial real estate prices were down 5.1 percent in the month of June alone.  This is an acceleration over the previous monthly rate of decline.  According to Moody's here: "The index is now 30.8 percent below its year-ago level and 38.7 percent below its peak in October 2007."  For anyone in the industry, this is not a surprise. I have written about inflated commercial valuations before here.