Moody's Sees Decline in Commercial Real Estate

A Moody's Investors Service index of commercial real estate prices declined by 0.6% in January and now stands down 2.4% from its peak in October of 2007. Regionally, Moody's said that in the East, apartments and retail continue to outperform national averages. In the South, however, the apartment sector is languishing, pulled down by a weak Florida market. Southern California remained strong in all real estate categories. Moody's said its repeat sales index may actually understate possible declines in CRE values, because "winners" in the market dominate sales activity (buildings with more appreciation and stronger cash flow), while "losers" have difficulty funding transactions to sell properties. Moreover, because CMBS loans can be assumed by new borrowers, existing loans with favorable terms may be bolstering the value of the underlying real estate.