We know that commercial real estate values are taking a sickening plunge from the 2007 peak levels, just as residential properties are. The question is: how much?
David Bodamer at Retail Traffic Magazine points to a deal up in Buffalo, where a local property developer is buying 11 shopping mall properties for 30% less than it sold them four in 2004. And 2004 was three years before the peak of the market.
What does this mean? Says Bodamer:
This is fairly incredible. Speculation has been that values on retail properties would fall 40 per cent peak to trough. But the peak on values wasn’t reached until 2007. The fact that Benderson is buying properties at a 30 per cent discount to 2004 values is a bit of a shocker.
The deal in 2004 between the companies works out to $122.34 per square foot. That is right in line with data from Real Capital Analytics. According to the firm, the average price on closed strip centre deals in the first quarter of 2004 was $121.80 per square foot. However, values on strip centres didn’t peak until the second quarter of 2007. Then, the average price on closed strip centre deals was $180.69 per square foot. Similarly, the average cap rate on closed deals in the first quarter of 2004 was 8.3 per cent vs. a low of 6.6 per cent reached in the second quarter of 2007.
Per asset, the 2004 deal works out to about $21 million per property. If the $160 million to $175 million price range is correct, that puts the price per asset at between $14.5 million and $16 million. If you do the maths, if the Benderson portfolio had traded at the peak of the market in 2007–at $180.69 per square foot–the total portfolio would have been worth $3.4 billion, or $30.8 million per asset. That means–potentially–that these assets traded about 50 per cent lower than what they were potentially worth at the peak of the market.
Now there’s a lot of “potentiallies” here and, and Bodamer goes onto note that there are all kinds of x-factors, like the condition of the properties. But a 30% drop from 2004, in what you’d think of as a standard kinda American market (Buffalo) is pretty severe, and doesn’t paint a pretty picture for the rest of housing-boom America.