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INCREASED SALES ACTIVITY IN 2011? The central bank will buy $600 billion in long-term Treasuries over the next eight months. The Fed also announced it will reinvest an additional $250 - $300 billion in Treasuries with the proceeds of its earlier investments. The bond purchases aimed at stimulating the economy (known as quantitative easing) will total up to $900 billion and be completed by the end of the third quarter of 2011. The assumption is that with historically low interest rates, largely engineered by the Fed's new phase of quantitative easing, bottoming of vacancies in most property sectors and the historically wide spread between real estate cap rates and interest rates will spur more investment sales activity in 2011 – Let's hope.
RETURN OF COMMERCIAL PROPERTY SALES? Commercial real estate sales volume will increase by an estimated 55% in 2010. This is an easy, yet encouraging comparison over 2009, a year defined by the most severe credit crunch in recent history, an economic crisis and severe uncertainty. These factors kept the vast majority of investors on the sidelines last year, resulting in a 53% drop in overall sales volume from 2008, and a 79% decline from the market peak of $501 billion in 2007. The 2007 level was an anomaly and not the industry bench mark against which normal sales activity should be measured. Nevertheless, this year's expected $168 billion in sales is still 41% below a more normalized bench mark of $287 billion, which resembles the more balanced year of 2004.
VALUES: While there has been a flight to security and thus the highest quality assets, which have maintained their value due to over demand and not enough supply, lower-quality properties have experienced the biggest decline in values, and continue to face challenges due to a lack of investor demand and available financing. The volume of distressed sales processed into the private market by lenders, although short of expectations, has been concentrated in this category. This is further pressuring values and forcing the market prices down.
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