If recent statistics are to be believed there has been a significant closing of the bid-ask gap in commercial real estate. Purchasers waiting for a flood of distressed assets to hit the market following the recent financial crisis have been disappointed - transaction volumes dried up significantly in the September 2008-August 2009 period. Vendors were able to hold out for better pricing and, now that the worst seems to be behind us, transactions seem to be resuming at a much faster pace.
A major factor has been the gradual improvement in commercial mortgage funding, a trend which is expected to continue into 2010 as the traditional portfolio lenders (the life companies and pension funds) return to the table.
Cap rates have definitely risen but the impact has been more pronounced in secondary markets and for assets with less durable income streams or weaker tenant profiles. A recent offering of a Vancouver apartment building in a very desirable location has a 3.4% suggested cap label! The GTA has seen a resurgence in commercial real estate sales during Q4 2009 but cap rates still appear to be around 75-150 bps over the 2007 levels depending upon asset type and location.
spearson@stratmor.com
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