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Global Credit Research - 24 May 2012
New York, May 24, 2012 -- US commercial real estate prices, as measured by Moody's/RCA
Commercial Property Price Indices (CPPI) national all-property
composite, were flat in March. After recovering 28.2%
since the January 2010 pricing trough and retracing approximately 47%
of its peak-to-trough decline, price appreciation
has decelerated, advancing only 1.8% over the last
"Commercial property price appreciation decelerated during the last
three months following a series of strong gains after the trough roughly
two years ago," says Tad Philipp, Moody's Director
of CRE Research. "The increased cost and decreased availability
of capital market debt in the wake of ongoing Euro area sovereign stress
has filtered its way into the prices of recently closed transactions."
Composed of a suite of 20 indices, the Moody's/RCA Commercial
Property Price Indices is a new series that measures price changes in
US commercial real estate through advanced repeat-sale regression
(RSR) analytics. The indices use transaction data from Real Capital
Analytics (RCA) and a methodology developed by David Geltner, a
professor at MIT, in conjunction with Moody's and RCA.
The new report "Moody's/RCA CPPI: Recovery Decelerates:
May 2012" is the first monthly report on the new Moody's RCA
Among the national all-property composite segments of the CPPI,
the growth in apartment prices has significantly outpaced that in the
core commercial property types over the past twelve months, with
apartment prices rising 18.0% against 10.0%.
Improving apartment fundamentals and the continuous supply of attractively
priced debt capital made available by the GSEs have led to the better
Apartment prices in major markets have shown the strongest recovery,
according to Moody's. The prices in this sector are down
just 2.8% from the new peak pricing level that they achieved
in February of this year.
Central business district (CBD) offices in non-major markets have
been the worst performing category of commercial real estate. During
the recession their prices fell 52.9% from peak to trough
and remain 45.6% below peak levels.
The Moody's/RCA CPPI shows major markets recovering more quickly
than non-major ones. For example, major market CBD
office has led the price recovery of the core commercial component of
the national all-property index. Major market CBD office
is up more than 50% since the trough, roughly double the
24% recovery of the core commercial sector as a whole.
In all, properties in the major markets have appreciated 37.5%
since the January 2010 price trough as compared with 21.4%
for properties in non-major markets. In the past three months,
however, non-major markets outpaced the major markets slightly
in their price improvement, 2.5% versus 0.9%,
as capital moves beyond the gateway cities in search of higher yields.
From 2007 through 2011 Moody's published the first RSR index for
commercial real estate, the groundbreaking Moody's/REAL CPPI,
which was optimized for derivatives trading. Derivatives trading
failed to develop and REAL elected to discontinue the series. Moody's/RCA
CPPI has been optimized for information and makes important advances in
accuracy and transparency.
Moody's research subscribers can access this report at: http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_SF286091
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Senior Vice President
Structured Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
MD - Structured Finance
Structured Finance Group
Moody's/RCA CPPI shows US commercial real estate price recovery decelerating
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
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