It’s a buyers market, for sure. Nope. No good news here for sellers. Would you believe that Malls in the Northeast would sell for 50% off their highs …

As reported in today at www.ZeroHedge.com, finally we get a market test valuation of the Commercial Real Estate marketplace.   The Buffalo News reports that REIT Developers Diversified Realty (DDR) is selling back 11 upstate

In 2004 DDR acquired 110 properties from Benderson for $2.3 billion, an average price of $21 million, and is now selling back 11 of these for a total price of $160-$175 million, of roughly a $15 million average price, and a 30% discount.

Not bad for Benderson which buying back what it sold 5 years ago at a 70 cents on the dollar. As Retail Traffic points out, this is very surprising as current estimates have been that retail properties would post at most a 40% decline from peak values achieved in 2007.   A 30% discount from a 2004 price implies a significantly higher discount from the peak. Retail Traffic calculated that the final closing discount from the peak is roughly 50%.  As RT points out: 

• There are a lot of things we don’t know about these assets. Are they healthy assets or do they need work?

• What do the current tenant rosters look like?

• Are the rents at market rates or lower?

• When do the leases come up for renewal?

• Did Developers Diversified sell these assets at a deeper discount than is truly reflective of market conditions out of a need to raise cash?

Without this information it is hard to draw a full conclusion on what it means for the market. BUT, the fact remains that this represents a massive drop in values from just more than two years ago.

And the drop in value is larger than even the most pessimistic estimates have been for the peak-to-trough change in prices for retail real estate.

Also, thanks to this market test, one will be able to recalculate what fair Debt-to-Market Value of Assets ratio is for the majority of mall REITs.

The result will likely be a dramatic rise from previously consensual ratios, presenting yet another data point indicative of the REITs bloated overvaluations due exclusively to short squeezes.

One sellers bloat is another buyers opportunity. This is a market where fortunes are gained and lost, quickly.

Tags: Commercia Real Estate Valuations, Mall REITs

Posted in valuation, Malls, CMBS, CMBX, Market Trending, Historical Perspective, Commercial Real Estate | No Comments