Seeking Stability

The Property Price Index from NCREIF (the National Council of Real Estate Investment Fiduciaries) shows that commercial properties held in a fiduciary environment on behalf of pension funds and other institutions returned 0.76 percent in the first quarter, ending a streak of six consecutive quarters of negative returns. All major property types except hotels were in the black, and hotels just barely missed. The Moody's/REAL Commercial Property Price Index and cap rate data from Real Capital Analytics also indicate that prices have stopped falling.
"Trophies and train wrecks" are leading the rebound - Class A properties in primary markets at one end of the quality continuum and at the other end, poorly performing, lesser quality properties that have little hope of covering their debt service within a reasonable period. The Federal Reserve's strategy allowing banks to restructure underwater loans has slowed the rate of foreclosures to a pace that is not overwhelming the market and in fact is frustrating some investors who had hoped for a greater selection of bargain-priced properties from which to choose. The managed pace of distress has encouraged investors to get off the sidelines and begin to deploy their capital, which is helping to buoy prices of Class A properties and properties that can be upgraded to Class A.