Continued Investor Faith in Commercial Real Estate
There are big storm clouds on the horizon and it’s not showing yet in the numbers. Business like predictability, good or bad, and the current uncertainty will damage the numbers for third quarter, I think.
Anyway, all we have to deal with to date is fact, and the facts we now have for May 2011.
Deal volume rose 150% in May according to the latest release of the CoStar Commercial Repeat Sale Indices (CCRSI). Average deal size was also about double from April at $33.2mil. Some of this was due to some large recapitalizations in New York City.
The dollar of investment grade sales also rose significantly in May over a year ago, increasing 191%. Investment grade was 4/5ths of the total mix increasing to 79% in May from 62% the previous month. This also tells you that financing is still very difficult for anything less than investment grade.
Distress has also declined a bit from 29.4% in April to 28.3% in May. That’s the lowest level since December 2009. The percentage of distressed sales in the investment-grade index declined to 32.8% in May from 41% the previous month.
Going forward, it appears that we may be in for some rough waters. I’m just starting to hear much of this out in the market. We’ll see if it’s a temporarily mood fueled by uncertainty due to the debt limits or it’s something more ominous similar to 1934.