Commercial Real Estate Goes South (Zacks.com)

Mon, 27 Apr 2009 21:03:26 Etc/GM

• Commercial property prices continue to fall, which could put many owners who bought at the height of the boom underwater on their mortgages.

• There will be a continued rise in loan defaults -- owners who have lostequity are more likely to walk away from their properties or sell at heavily discounted prices.
• Lower dollar deals are getting done vs. large transactions; financingfor smaller properties is easier, which should make price drops in this class >$15 million, less severe.
• With financing still scarce and fundamentals going south, expect pricesto continue falling. Expect fewer transactions as owners are reluctant to take losses.
• Wait for more price drops before buying commercial real estate; whenbuying, focus on the larger, higher growth markets. According to the Moody's report, y/y price drops were significantly lower in the top 10 MSAs for all major property types (apartments, industrial, office, and retail).
• We still favor REITs with assets in supply constrained, urban markets,where values and rents will continue to hold up better. A couple of companies we have buys on are Avalon Bay (NYSE: AVB - News) for apartments and Regency Centers (NYSE: REG - News), a strip mall owner. Despite declining property values across these sectors, both companies are still trading below the value of their assets.

Read the full analyst report on AVB

Read the full analyst report on REG

Zacks Investment Research

source: http://biz.yahoo.com/zacks/090427/19573.html?.v=1

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