By STEVE BROWN / The Dallas Morning News
stevebrown@dallasnews.com
A Memphis , Tenn., company that just bought a McKinney apartment and retail complex got one heck of a deal.
Mid-America Apartment Communities paid $31.25 million for the new Times Square development in Craig Ranch. It’s one of several multifamily housing projects the real estate investment trust has just purchased.
Times Square has more than 300 luxury apartments and 88,000 square feet of retail space and cost about $52 million to build.
The lender that sold the foreclosed property – Bank of America – had lent more than $45 million on the development.
Mid-America got the mixed-use project at almost a 40 percent discount from construction cost.
Such markdowns of new commercial properties aren’t unheard of in North Texas. And investors are eager to sign up for more such deals.
But they’d better hurry.
The latest industry barometers indicate the commercial property price plunge may have bottomed out.
Nationwide, commercial property transaction prices jumped by a near record 17 percent in the second quarter from a year earlier, according to the latest quarterly index from the MIT Center for Real Estate.
The last time commercial real estate values rose that much was five years ago, during the boom.
Even with the recent sharp gain, MIT researchers point out that prices remain more than 30 percent lower than they were in mid-2007.
MIT’s research director David Geltner said that while commercial prices are bottoming, “it’s a rocky bottom, and a precarious bottom as well, because pricing could head down again, especially if we go into a double-dip recession.
“We won’t have really solid pricing until we get stronger trading volume.”
MIT also found that investor demand for commercial real estate is up more than 20 percent from 2009.
But sellers are still reluctant.
“Property owners are still largely holding properties off the market, not wanting to sell at prices that they still view as depressed, or anyway not wanting to move money from real estate to stocks or bonds in the current economic climate.”
There’s also some indication that the flow of failed deals to lenders may be slowing.
Commercial mortgage delinquencies at banks – while still at a high rate – were flat in the second quarter, the Mortgage Bankers Association reports. Just over 4 percent of banks commercial property loans were 90 days or more behind in payments at the end of June.
Delinquency rates for commercial mortgage-backed securities debt were still rising at mid-year – up to the highest level since records have been kept.
More than 8 percent of deals financed by commercial mortgage-backed securities were in the tank in the second quarter, the Mortgage Bankers say.
Life insurance companies have the lowest late loan rates.
In the second quarter, less than a third of 1 percent of their borrowers were behind in payments.
“Performance across all investor groups will continue to depend on economic growth and its ability to generate demand for commercial real estate space,” said Jamie Woodwell, the MBA’s vice president of commercial real estate research.
