News Wrap
continued from page 12
month in Manhattan, keynote speaker
Kevin K. Nunnink, a managing director
in the firm’s Kansas City office, suggested that B and C property types would
bear the brunt of the downturn. Citing a
Real Capital Analytics sales activity
report for September and October,
Nunnink noted that overall deal volumes were down both months, placing
core values into question. However, capitalization rates for B and C properties in
particular, he observed, seem to be rising. “Our survey of class A properties
shows that there seems to still be a
plethora of buyers,” said Nunnink. “I
don’t think you’ll see a 10% price correction in class A properties, but B and
C properties might experience a 5% to
10% correction.”
Nunnink pointed out that the health
of the CMBS market is partly contingent on the activity of bond buyers.
“When the wheels came off, you saw
bond investors, rather than trying to figure out what was happening, run to
three-month Treasury bills. The conundrum that we faced was, will the bond
buyers come back and free up the liq-
uidity that we need to move on in the
market?” speculated Nunnink. “The
good news is that they haven’t shut the
door on us, but the bad news is that
when you look at the three-month, 10-
and two-year Treasuries, it has all drifted down to those run-for-cover rates.
Right now it appears that bond buyers
are letting the dust settle.”
Jones Lang LaSalle, in a December
2007 report of the capital markets, contends that a correction would simply put
price tags closer to original valuations.
The run-up in prices that defined the past
few years will continue to cool. But the
values are still in line with the pricing
expectations of both equity investors and
lenders, says the firm.
Regardless, by the close of last year,
according to the report, highly leveraged
buyers who would typically use debt to
cover up to 90% of an asset purchase price
retreated due to the volatility in the debt
markets.
The debt market will eventually calm,
with a return of liquidity and a new equilibrium pricing level, notes JLL.
Commercial property markets, though
affected by the credit crunch, have experienced less volatility than the equity mar-
kets. Plus, there is still a tremendous
amount of capital looking to be placed in
the US. Commercial mortgage delin-quencies, defaults and long-term interest
rates remain at historic lows, which, in
turn, should attract ample debt capital
targeting real estate, according to JLL.
The firm anticipates deal quantity to
remain sluggish this year, with total volume sliding an estimated 35% to 40%
lower than 2007’s levels, excluding entity-level transactions. However, such a
decline would still provide total transaction volumes generally equal to the five-year, 2002-to-06 annual average, says the
firm.—Danielle Douglas
After Months of Debate,
TRIPRA Signed Into Law
Mere days before its Dec. 31 expiration,
President George W. Bush signed a seven-year extension of the terrorism risk insurance program.
The final agreement on the Terrorism
Risk Insurance Program Reauthorization
Act of 2007 comes after months of a
three-way tug-of-war between the House,
NEWS WRAP continued on page 18
