Investors have seen mixed messages about the health of the commercial real estate market recently.
On Oct. 19, Moody’s reported that commercial property values had dropped 3.3% during August to a new low, 45.1% below the October 2007 peak.
But CoStar Group countered on Nov. 3 that investment-grade property values had recovered by 5.5% in Sept., while Green Street Advisors reported on Nov. 2 that property values remained stable in October.
The numbers point to two dominant themes.
First, property values will continue to bounce along a bottom for some time until either a positive or a negative force begins to dominate.
Second, both the positive and negative forces are already operating in what is now a “trifurcated” market.
Ironically, both the positive and the negative forces represent good news for investors in publicly traded REITs.
Professor David Geltner of MIT’s Center for Real Estate, focusing on the market “trifurcation,” reported that values of “trophy” properties values actually increased by 5% in August and are now only 17% below their peak.