The MIT TBI index reported that the value of U.S. commercial real estate owned by big pension funds fell 2.5 percent in the third quarter of 2007. The index figures, which are produced by the MIT Center for Real Estate, measure only commercial property sales to pension funds.

Last quarter’s drop was the first in commercial real estate values since 2003 and the steepest since 9/11, when commercial values plummeted by 3.9 percent following the attacks on the World Trade Center.

MIT uses transaction price data from the National Council of Real Estate Investment Fiduciaries (NCREIF) for the TBI, which began a year ago last February and covers the time from 1984. It also uses appraisal information gathered for more than 6,000 NCRIEF properties. The index is updated every quarter.

MIT findings were further supported by Moody’s Investors Service, which reported that figures for commercial real estate values, which had almost doubled during the past seven years, dropped by 1.2 percent in September from August.

Though neither the TBI numbers nor the Moody’s findings come close to the disastrous problems faced by the residential housing market, where foreclosure rates and defaults are the highest in years due to troubled borrowers’ inability to pay their home loans. Historically, the commercial mortgage default rate is 1 percent, well below the current 20 percent default rate for subprime residential loans.

Still, there is some fallout from the residential to commercial markets in the form of increased lending restrictions for commercial properties. Last month, a report published by Real Capital Analytics said that many commercial transactions that were scheduled to close during the third quarter failed to close, and that the average sales volume for office buildings dropped to $8.5 billion in September, down from $11.5 billion for the two preceding Septembers.

Tags: commercial real estate investments, commercial real estate values, REITs

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