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Increased Sales Activity of Bubble-Era Transactions Key Sign of a Recuperating Commercial Real Estate Market

/ Source: GlobeNewswire


Index Overview

  • This month's CoStar Commercial Repeat Sale Index ("CCRSI") provides the market's first look at April 2011 commercial real estate pricing.
  • The CCRSI provides the broadest measure of commercial real estate repeat sales activity tracking more than 793 repeat sale transactions in April 2011, and more than 100,000 repeat sale transactions since its inception.   

April 2011 Pricing Highlights

  • Sales volume continued to rise significantly in April 2011 on a year-over-year basis, with the liquidation of more properties previously bought during the 2005-07 peak of the last cycle.   
  • While we believe the realization of losses through the sale of properties previously purchased at the peak is a necessary step in the market recovery process, the sale of these properties is weighing on commercial real estate price indices in the interim. 
  • In April 2011, over 77% -- or more than 3 out of every 4 of the properties previously bought at the 2005-2007 peak were sold at a lower price. Comparatively, 46% of the properties that were purchased before or after the 2005-2007 period were subsequently sold at a lower price in April 2011. 
  • While the percentage of distressed sales this year has remained steady at 31% on average year-to-date for the composite index, it has risen for larger properties as 42% of Investment Grade sales this year were distressed compared to 35% in 2010. This increase is likely resulting from the healthier financial position of the larger, better capitalized lenders who typically finance these bigger, higher quality properties and their ability to liquidate the distressed assets underlying their loans.
  • In contrast to the housing market where sales volume has yet to trend upward with any consistency, the dollar volume of commercial real estate sold was up 81% year-over-year in April 2011 and 18% by transaction count. As a result, as of April 2011 the average transaction size has risen 18% for general commercial pairs to $1.8 million and 47% for investment grade pairs to $16.4 million. This further highlights the availability of debt from lenders that typically finance larger, investment-grade properties relative to the lack of available debt from smaller banks that lend on small-balance properties. 
  • 59.8% of commercial real estate sales pairs this year were sold at a lower value than their previous sale, compared to 56.9% in 2010 and 46.5% in 2009.
  • Of the 59.8% of commercial real estate sales pairs that sold at a lower price than their previous sale, the average month of the previous sale was December 2005. For the 40.2% of sales pairs that sold at a higher price than their previous sale, the average month of the previous sale was September 2003.

CCRSI Index Results

  • CoStar's Composite Commercial Repeat Sales Index declined by 1.7% in April 2011. It is now 13% below the same period last year and 38% below its peak in August 2007. 
  • CoStar's General Grade Commercial Repeat Sales Index declined by less than one percent in April, but is also 13% below the same period last year and 37% below its peak in July 2007. 
  • CoStar's Investment Grade Commercial Repeat Sales Index declined by 5.3% in April, and is now 9% below its year-ago level and off 44% from its August 2007 peak.

The CoStar Commercial Repeat-Sale Indices (CCRSI) are the most comprehensive and accurate measures of commercial real estate prices in the United States. In addition to the national composite index, there are a total of 32 sub-indices in the CoStar index family. The sub-indices include breakdowns by property sector (office, industrial, retail, multifamily and land), by region of the country (Northeast, South, Midwest, West), by transaction size and quality (general commercial, investment grade), and by market size (composite index of the 10 largest metropolitan areas in the country). The CoStar national composite index is produced on a monthly basis.

The CoStar indices are constructed using a repeat sales methodology, widely considered as the most accurate way to measure price changes for real estate. The repeat sales methodology measures the movement in the prices of commercial properties by collecting data on the actual sales prices that occur when a property sells. When a property is sold more than one time, a sale pair is created. The prices from the first and second sale are then used to calculate price movement for the property. By aggregating all the price changes from all of the sale pairs, a price index is created.

Commentary on data

The CCRSI June 2011 report is based on data through the end of April, 2011. In April of 2011, 793 sales pairs were recorded compared to 856 in the prior month. However, despite the monthly decline, pair volume as well as total commercial real estate volume continues to trend upward and the total number of repeat sales pairs was up 18% year-over-year. For the composite index, distress sales as a percent of the total sales pairs dropped to 27.2% in April 2011 from 32.9% in April, 2010, but the year-to-date average of 31% is on par with 2010's average. However, for the investment grade index, the percent of distressed sales has risen to 41.9% this year from an average of 35.2% in 2010. By property type the highest percent of distress in the April, 2011 pairs was in hospitality at 30.8%, followed by office at 29.5%, multifamily at 26.3%, retail at 25.9% and industrial at 24.5%.  

Overall, there has been a significant upward trend in pair volume going back to 2009. January 2009 appears to have been the low point in the downturn in terms of pair volume, when 384 transactions were recorded. Since then, pair dollar volume has increased overall and the average deal sizes for both general and investment grade have increased. 

We provide one graph below showing the sales counts and a second showing dollar volume. Note that by transaction count general sales accounted for 86% of the total sales transaction count in April 2011 down from 90% in April 2010. By sales volume in April 2011 investment grade properties represented 59% of total volume, up from 45% for the prior year. The average investment grade deal size in April 2011 was $16.3 million and $14.0 million in March 2011. The average dollar size for the general index was $1.8 million in April 2011 and $1.5 million in March 2011.

Charts accompanying this release are available at

For more information about CCRSI Indices, including our legal notices and disclaimer, please visit .

About CoStar Group, Inc.

CoStar Group (Nasdaq:CSGP) is commercial real estate's leading provider of information, analytic and marketing services. Founded in 1987, CoStar conducts expansive, ongoing research to produce and maintain the largest and most comprehensive database of commercial real estate information. Our suite of online services enables clients to analyze, interpret and gain unmatched insight on commercial property values, market conditions and current availabilities. Headquartered in Washington, DC, CoStar maintains offices throughout the U.S. and in Europe with a staff of approximately 1,500 worldwide, including the industry's largest professional research organization. For more information, visit .

This news release includes "forward-looking statements" including, without limitation, statements regarding CoStar's expectations, beliefs, intentions or strategies regarding the future. These statements are subject to many risks and uncertainties that could cause actual results to differ materially from these statements. More information about potential factors that could cause actual results to differ materially from those discussed in the forward-looking statements include, but are not limited to, those stated in CoStar's filings from time to time with the Securities and Exchange Commission, including CoStar's Form 10-K for the year ended December 31, 2010, and CoStar's Form 10-Q for the quarter ended March 31, 2011, under the heading "Risk Factors." In addition to these statements, there can be no assurance that the commercial real estate market is recuperating; that commercial real estate sales volume will continue to increase; that the volume of bubble era transactions will continue to increase; that larger, better capitalized lenders will continue to finance larger, investment-grade properties; that total commercial real estate volume will continue to trend upward; that the upward trend in pair volume will continue; that January 2009 will turn out to be the low point in the downturn in terms of pair volume; that pair dollar volume and average deal sizes for both general and investment grade will continue to increase; that the trends represented or implied by the indices will continue; and that the CCRSI will be released on the date and updated on the frequency set forth in the release. All forward-looking statements are based on information available to CoStar on the date hereof, and CoStar assumes no obligation to update such statements, whether as a result of new information, future events or otherwise.

CONTACT: Media Economist Chris Macke Senior Real Estate Strategist 877-739-5192