UPDATE 1-US commercial property price fall most since 2000-index

Mon May 19, 2008 12:39pm EDT

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(Adds derivatives forecast in seventh paragraph, hotel profit drop in ninth)

NEW YORK May 19 (Reuters) - Retail properties are leading a drop in U.S. commercial real estate prices, which in March posted their steepest one-month decline since at least 2000, Moody's Investors Service said on Monday.

Moody's said prices of retail properties have dropped 5.7 percent from their peak in 2007, compared with declines of 3.4 percent for apartment buildings and 2.3 percent for industrial real estate, respectively. Office property prices are down 2 percent from their peak, according to quarterly data.

On a monthly basis, commercial property prices fell 2.3 percent in March, the most since Moody's began collecting the data in 2000. Values were 2.6 percent below their October 2007 level, but still up 0.9 percent from a year ago, Moody's said, citing its commercial property price index.

Slowing U.S. economic growth and the ailing housing market have begun to take their toll on retailers.

Lowe's Cos Inc (LOW.N), the second-largest home improvement chain, said on Monday its first-quarter profit declined by 18 percent and cut its sales growth forecast for 2008. Home goods retailer Linens 'n Things earlier this month filed for bankruptcy and announced plans to shutter 120 stores.

The impact of a slowing economy and forecasts of a 20 percent drop in commercial property prices from their peak by Moody's and JPMorgan Chase & Co in the first quarter led to steep price drops on securities backed by commercial real estate. However, prices on commercial mortgage-backed securities have since climbed amid expectations the selling overstated the losses that would occur.

According to property derivatives traders, average commercial property prices are set to fall by 8 to 9 percent in the next 12 months and by double that over two years. The nascent over-the-counter market follows the appraisals-based NCREIF property index, which is calculated by the National Council of Real Estate Investment Fiduciaries and is a benchmark used by U.S. pension funds.

Fitch Ratings said delinquencies on CMBS rose slightly, to 0.35 percent in April from 0.33 percent in March. Fitch said it was most concerned with retail and hotel properties even though delinquencies in those sectors decreased marginally.

At least four gaming companies with big hotels, including MGM Mirage Inc (MGM.N) and Las Vegas Sands Corp (LVS.N), have recently reported eroding quarterly earnings. (Reporting by Al Yoon in New York and William Kemble-Diaz in London; Editing by Dan Grebler)

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