The Wall Street Journal posted a story based on Moody's Commercial Real Estate Indices pointing out that the declines in values posted to date have now wiped out four years of gains.
The Moody's/REAL National All Property Type Aggregate Index is out and finds that value of offices, apartments, hotels, warehouses and malls has fallen to March 2005 levels. Remember March 2005? Big news then was Terry Shiavo and the Dow was still solidly above 10,000.
Since then, of course, lots of office buildings have traded hands, mostly with huge amounts of debt. Falling prices hurts landlords with lots of debt. In 2007, for instance, there was $200 billion of issuance of commercial mortgage backed securities. Values are 20% below where they were when that debt was issued.
“Given the extent of price decline, significant potential exists for leveraged properties to have depleted their credit support. In other words, the equity has disappeared,” says Neal Elkin, President of Real Estate Analytics, the firm that produces the index. The index hit 150.63 in February, down 0.6% from the previous month. (100 on the index equals December 2000 prices.)