Interesting Times

The Moody’s/REAL Commercial Property Price Indices fell 1.5 percent in October from September to the lowest since August 2002. Prices were down 36 percent from a year earlier and are 44 percent below the peak in October 2007, Moody’s Investors Service Inc. said in a statement.

Values are dropping as U.S. unemployment climbs and consumers cut spending. Office vacancies may approach 20 percent next year as employers hold off hiring, commercial property brokers Jones Lang LaSalle Inc. and Grubb & Ellis Co. said last month.

“The number-one issue facing commercial real estate right now is the value declines that we’ve seen since prices peaked,” Matthew Anderson, a partner at Foresight Analytics LLC in Oakland, California, said before the data were issued. “I tend to think that the size of the declines moving forward is going to be smaller.”

An estimated $1.4 trillion of commercial real estate debt is scheduled to mature over the next five years and Foresight estimates that 53 percent of it is “underwater,” meaning the value of the property is less than the mortgage, Anderson said.

More Declines Forecast

Commercial property values may decline by a total of 50 percent from the peak to the bottom, Anderson said.

“This is the worst that we’ve seen since World War II,” Anderson said.

Prices in the New York area office market fell 38.1 percent over the past four quarters, Moody’s said today.

The delinquency rate for U.S. commercial mortgage-backed securities rose to 4.47 percent as of the end of November, Moody’s Investors Service said on Dec. 10. That’s almost six times the year-ago rate of 0.75 percent.

Delinquencies for commercial real estate mortgages held by banks may rise to 5.6 percent in the fourth quarter and reach as much as 8 percent next year, Anderson said.