Commercial property prices register declines

By Michael Stoler | February 10, 2009 03:44PM

Commercial property sales prices in the United States posted their greatest quarterly fall in 22 years, according to an index developed by the Massachusetts Institute of Technology Center for Real Estate.

According to MIT, commercial real estate values fell 10.6 percent in the fourth quarter of 2008, surpassing the record fall of 9 percent seen in the fourth quarter of 1987.

The index tracks the prices that institutions, such as pension funds, pay or receive when buying or selling commercial properties, which include office buildings, apartment complexes and retail shopping malls.

The demand index, which tracks prices potential buyers are willing to pay, has fallen for the past six quarters, and is down 23 percent for the year and 31 percent since its mid-2007 peak.

In New Jersey, prices are dropping for underperforming office buildings by as much as 48 percent for properties which were purchased less than three years ago. In December 2005, real estate investment advisor ING Clarion Partners made a direct investment with the purchase of Metropolitan Center — formerly the headquarters of Metromedia — a landmark office property within walking distance of the New Jersey Meadowlands Sports Complex. The seller, CB Richard Ellis Investors, made approximately $119.5 million for the 422,470-square-foot, 15-story building in East Rutherford, N.J., with a 1,300-space parking facility. At the time, the building sold for one of the highest prices per square foot in the Meadowlands — $282.50 — for a building built in 1986 by MetLife. Fast forward to December 2008, with a vacancy of approximately 44 percent and a weak office market, ING Clarion sold the building for $61 million, a 49 percent reduction from the price it paid for it three years ago. The purchaser was CBRE Investors, on behalf of its Strategic Partners U.S. Value 5 Fund. The building buy was part of a three-office building purchase (the other two are in Florida and California) totaling approximately $209 million.

With the recession, uncertainty in the market and a weak leasing market in New Jersey, expect dropping prices to continue for at least 12 to 18 months.