Commercial real estate market still troubled

Housing prices have stabilized and sales are rising, but the commercial real estate market is still deteriorating locally and nationally, experts said yesterday at Virginia Commonwealth University's 19th annual Real Estate Trends Conference.

Commercial real estate values nationally have dropped nearly 40 percent since peaking in October 2007 -- and that figure could reach 50 percent, said Sally Gordon, managing director of BlackRock Inc., a New York-based money-management and risk-advisory firm.

"Total returns and values have fallen further and faster than in any previous downturn, and it's not over yet," Gordon told about 800 people at this year's event at the Greater Richmond Convention Center.

The good news is that financial markets are more stable than they were a year ago, when the entire system came close to failing, she said. Also, "the job market is less bad, and it has to be less bad before it gets good."

A good job market is critical to the health of commercial and residential sectors, speakers said.

Commercial real estate professionals here said Gordon's assessment of the national market is reflective of the situation in the Richmond area.

However, few, if any, office sales have taken place here this year.

"It seems true, but we don't have the data points to support it," Steve Gentil, chairman of Grubb & Ellis/Harrison & Bates brokerage, said after Gordon's presentation.

Eric Robison, vice president of Thalhimer/Cushman & Wakefield brokerage, concurred.

Some properties, such as three buildings at the Boulders business park in Chesterfield County, were for sale early this year but were taken off the market when no acceptable offers materialized, he said. Offers were so low that they weren't negotiated, he said, declining to elaborate.

Gordon said the high prices that commercial properties fetched in 2007 were phantom values, and they will not return in this business cycle. Property owners will be disappointed if they think they can just hold on for a year until values return, she said.

"The assets were never worth what we thought they were. What goes down does not necessarily go up," she said.

Prices are about what they were in 2003, Gordon said, and it will take years, not months or quarters, before the commercial real estate market regains traction.

David Lereah, former chief economist for the National Association of Realtors and now president of Reecon Advisors, said the residential market will take time to heal as well. The sector hit bottom in January, he said.

Housing sales are rising, and the supply of homes for sale is falling -- signs that the worst is over. Still, more than 2 million homes remain vacant in the country, he said. In Fort Myers, Fla., for example, it is not unusual to see a neighborhood with 500 homes and 80 percent are vacant.

"The financial crisis is almost over, but we still have significant problems," Lereah said of the residential market.

Sales of previously owned houses nationally are down 31 percent from their peak in 2007. Home sales in the Richmond area were down 47 percent at the end of the second quarter from a peak in the third quarter of 2005.

Prices are 21.5 percent lower, according to the National Association of Realtors. In the Richmond area, median home prices dropped 12.6 percent to $206,904 in the second quarter from the year-earlier period, according to the Virginia Association of Realtors.

Housing construction nationally has fallen 70 percent from its peak in 2005, and mortgage delinquencies continue to rise.

Still, mortgage interest rates hover near historic lows, Lereah said. And home values are beginning to reverse and head higher.

"The economy is providing wobbly support for the housing sector," he said.

Contact Carol Hazard at (804) 775-8023 or .