Commercial Prices Fall as Vacancy Rates Rise
The value of commercial property is being driven by vacancy rates—the higher the vacancy rate, the lower the price.
At the height of the boom, a high vacancy rate was sought after because the buyer could fill the space and raise rents. Today, finding tenants is a major challenge in many areas and buyers will pay more if a building has guaranteed tenants for the long term. Robert Von Ancken, the senior appraiser for Grubb & Ellis in New York, estimates that substantial vacancies cost a seller as much as 30 percent of value.
“Investors today are very hesitant to make a mistake by underwriting improvement, decreasing vacancy, or increasing rent,” says Scott A. Singer, the executive vice president of the Singer & Bassuk Organization, a New York company that arranges financing.
Source: The New York Times, Terry Pristin (09/15/2009)
The value of commercial property is being driven by vacancy rates—the higher the vacancy rate, the lower the price.
At the height of the boom, a high vacancy rate was sought after because the buyer could fill the space and raise rents. Today, finding tenants is a major challenge in many areas and buyers will pay more if a building has guaranteed tenants for the long term. Robert Von Ancken, the senior appraiser for Grubb & Ellis in New York, estimates that substantial vacancies cost a seller as much as 30 percent of value.
“Investors today are very hesitant to make a mistake by underwriting improvement, decreasing vacancy, or increasing rent,” says Scott A. Singer, the executive vice president of the Singer & Bassuk Organization, a New York company that arranges financing.
Source: The New York Times, Terry Pristin (09/15/2009)
Now I'm not one to predict doom and gloom in the future for commercial real estate values. But I am hearing from local investors that are very concerned about where the market is going and how they will react if there are no options for them.
This goes back several blogs where I've been talking about banks taking a more active roll in loan mods. They can help investors work with tenants to lower their rents and modify the loans for those investors until the economy makes a turn upward.
I think the key is to keep people (tenants) working and get federal money so banks can make lower interest rate commercial loans and mods.
Keep the tenant in business, keep the cash flow moving, keep property values from taking a drastic plunge caused by foreclosures, keep low cost money available for investors to purchase commercial real estate. If the banks haven't learned from the recent residential roller coaster, they will suffer the same mistakes and losses.
Tell me what you think!
Mark Wilson
mark@bigmark.net
check out my website at: www.bigmark.net
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