U.S. commercial property sales to fall more, report finds

NEW YORK (Reuters) - Sales of U.S. commercial property likely fell 70 percent in 2008 and are expected to slide another 20 to 25 percent in 2009, according to a report by real estate services firm Jones Lang LaSalle Inc JLL.N.

Last year’s sales reached just $125 billion, crippled by the global credit crisis and the U.S. recession, the firm said in its U.S. Capital Markets 2009 research report released on Monday.

The decline was most precipitous in the last part of 2008, as the commercial mortgage-backed securities (CMBS) market, the key source of funding for the real estate boom of the prior five years, virtually closed.

CMBS issuance plummeted 95 percent in 2008 to $12.1 billion. There has been no CMBS issuance since June, Jones Lang said.

“The beginning of a new presidential administration and new aggressive monetary policies should increase certainty into the debt markets by mid-2009, but the CMBS market as we knew it in 2006-2007 is gone,” Bart Steinfeld, managing director of Jones Lang LaSalle’s Real Estate Investment Banking practice, said in a statement.

Over the past few months, the commercial real estate industry has seen a standoff between would-be sellers who refuse to capitulate to values that are about 30 percent or more lower than they were from their highs in early 2007 and prospective buyers who will not pay prices they believe are too high, the report said.

But that standoff may finally shake loose when some owners find themselves facing foreclosure because they have no sources for new loans to replace ones that are maturing.

“It may take another three to four quarters for broad-based distress to reach the sales market, but there is no question there is capital waiting to invest in real estate once opportunities arise (estimated at $300 billion targeting U.S. real estate),” Earl Webb, chief executive of Jones Lang LaSalle Capital Markets, said in a statement.

For quality properties, first-year returns on commercial real estate investments rise above 8 percent, as measured without the use of debt, “opportunistic investors will begin to seize these once-in-a-lifetime yield opportunities,” Webb said. During the commercial real estate boom, some sales commanded first-year returns of less than 4 percent. Returns and prices move in the opposite direction.

Also, as rents continue to soften and occupancy falls, property values may continue to decline. Jones Lang sees rents declining into 2010.

Reporting by Ilaina Jonas, editing by Gerald E. McCormick