June 22, 2009 / 6:38 PM / 10 years ago

UPDATE 1-US commercial property index in record drop-Moody's

NEW YORK, June 22 (Reuters) - U.S. commercial property prices plummeted 8.6 percent in April, a sign sellers are beginning to capitulate to a market deteriorating on lack of credit and the effects of recession, according to Moody’s Investors Service.

It was a record drop for Moody’s REAL Commercial Property Indices, which show prices are now 29.5 percent below the peak of October 2007, said Connie Petruzziello, an analyst at Moody’s. The index history extends back to December 2000.

Many analysts have been predicting prices on office, retail and apartment buildings would accelerate their declines as the credit crunch limits financing for owners facing maturing debt. Lenders are often negotiating loan extensions and refinancings to ward off distressed sales, but borrowers are often unwilling or unable to meet terms, such as putting up more equity.

What is more, investors are also shying away from the sector as soaring vacancy rates and falling rents reduce cash flow required to pay interest on debt.

The April data from Moody’s included sales negotiated at the nadir of the credit crisis from the end of 2008 through early 2009.

But credit availability is still thin in commercial real estate, Richard Parkus, an analyst at Deutsche Bank, told the Reuters Real Estate Summit in New York.

“While loss aversion is no doubt still in play with many owners, more distressed sales appear to be occurring, resulting in more negative returns and causing larger drops in the index,” Nick Levidy, a managing director at Moody’s, said in a statement.

Sales volume in April fell from March, and was the lowest since the inception of Moody’s indices.

Moody’s reiterated it expects commercial real estate values to fall 35 percent to 40 percent, from peak to trough. (Reporting by Al Yoon; Editing by Theodore d’Afflisio)

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