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Commercial Real Estate

Conflicting data about commercial real estate market, booms and busts

Moody’s reports a price drop

Moody’s announced today that their REAL Commercial Property Price Index dropped 1.2% in January from the prior month figures. The report blames distressed property sales as dragging values down lower. The index is down 4.3% compared to prior year data.

Demand for commercial properties is up, ironically, as the economy seems to be improving in several major parts of the country. However, the lower prices are driven by foreclosures and distressed sales.

Now that we’ve gotten the “official” prognosis out of the way, what’s going on in YOUR part of the commercial world?

All real estate is local

Every day I read conflicting reports about brighter outlooks in the central San Antonio area, but Houston is still in the dumps. Naples, Florida is looking good today, as Bloomberg says the wealthy are returning, but Atlanta is not. And those are just a few reports I’ve read lately. Even in one major city, there are areas of boom and others of bust.

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Here’s a chart I created based on MLS data in my rural part of Pennsylvania. I was shocked to see the 2010 uptick in volume. We closed significantly more sales in 2010 than 2009, but at lower prices. We actually had a small surge of sales in the 4th Quarter, perhaps because investors and businesses were on the hunt to close before December 31. I participated in one transaction specifically that had to close before the end of the year or the investor was no longer interested.

Data skeptics

I showed my chart to a local commercial lender, however, and he was skeptical. My data was purely MLS transactions. In our area there are more private transactions in the commercial sphere than MLS closes. So I speculated that there had to have been many more sales that I had on my chart. He replied if there were, he didn’t know where they were, as he was not seeing the volume uptick that the chart shows.

Hmmm. So where is all the commercial activity?

A certain percentage were likely owner financed, or at least partly owner financed. Some were private transactions with local investors fronting the cash. Obviously the number of sales I have tracked weren’t going through THIS particular lender’s bank.

It’s been asserted that commercial sales lead residential out of a recession. If so, then that is good news. Will 2011 be even better commercially, and will it pull residential out of the doldrums? For my area it looks like residential hopefully flattened out in 2009-2010.

What about your local market?

What’s going on in your neck of the woods? Do you chart number of sales and transaction volume?

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Written By

Erica Ramus is the Broker/Owner of Ramus Realty Group in Pottsville, PA. She also teaches real estate licensing courses at Penn State Schuylkill and is extremely active in her community, especially the Rotary Club of Pottsville and the Schuylkill Chamber of Commerce. Her background is writing, marketing and publishing, and she is the founder of Schuylkill Living Magazine, the area's regional publication. She lives near Pottsville with her husband and two teenage sons, and an occasional exchange student passing thru who needs a place to stay.

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