The Commercial Real Estate (CRE) in 2007, its peak and has since been in a long process of collapse. This applies to the valuation of assets of property types (residential apartments, offices, industrial, self storage, health care, etc.), as amended by the increasing capitalization (cap) rates down the line is busy.
Cap on real estate prices are ready, what is the P / E stocks, investors measure the value attribute to generate each dollar of net cash flow from operationsfrom the house. In other words, can cap rates by dividing the net operating income (NOI) to the value or amount that an investor paid for a property will be charged.
Increase cap prices means that investors demand higher risk premiums on their commercial property investments. The usual price for CRE quality of about 7 percentage points above the state title in 10 years to maturity, or equivalent "riskfree rate."
In a continuation of the saga-CRE, announced, Bank of Americathat half of all commercial mortgages are not to reach the maturity of notes to refinance.
Almost $ 1240000000000 commercial mortgages to be refinanced over the next four years. With so much debt and in need of refinancing, BofA announcement makes a bad situation even worse.
Between 50 and 60 percent of the loans on skyscrapers, hotels, shopping malls and apartment complexes are not due to refinance within a few months of hisDate of this year, Bank of America Merrill Lynch analysts said in a report.
By comparison, what happened during the boom years, we should note that a record 251.1 billion dollars in commercial mortgage-related securities issued in 2007 were $ 1,700,000,000 compared to previously released in 2010.
Commercial real estate companies are increasingly desperate. According to Thomson Reuters, there are at least 12 companies CRE plans to sell shares in connection with initial public offerings next year. Since sales of equity at the beginning of thisyears or are not completely or operate at deep discounts, it is likely that CRE company in a position to re-capitalize the properties that have operating margins less and less profitable.
Without a huge bailout from the government, 41 percent decline from 2007 CRE could be just the beginning of something much worse.