The vultures are circling.
In an abrupt reversal, the commercial property industry that started 2007 giddy about its prospects enters 2008 facing falling property values, a seized-up credit market and concerns that a slowing economy could dampen future leasing and rental rates.
While only several months ago investors expected to sell and resell office buildings at escalating prices regardless of their financial performance, vulture investment funds are raising money to pounce on bargains when lenders start unloading real estate that owners can't afford to hold.
"In 2008, I expect to see (lenders) repricing properties on a grand scale, saying you can have this at 30 or 40 cents on the dollar" for certain buildings in some markets, said Christopher Carroll, managing director of Cohen Financial LP, a Chicago-based financial-services firm. "Now, investors are putting together funds they'll use when they think values have hit bottom."
With the credit market crippled and underwriting criteria tightened, commercial property prices and sales volume have fallen steeply in the past few months, according to a mid-December report from Real Capital Analytics, a New York-based real estate research firm. Exactly when the floor for commercial property prices will be reached is anybody's guess.
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