CRE Continues to Reflect Massive Drop in Values

David Bodamer at Retail Traffic Magazine points to a deal up in New York by Benderson Development, Buffalo’s biggest homegrown retail landlord. The local property developer is currently buying properties at a 30% discount to 2004 values. 2004 by the way was three years before the peak of the market.

From Retail Traffic: A little more than five years ago Developers Diversified Realty bought 110 properties containing 18.8 million square feet of space from Benderson Development in a $2.3 billion deal. Now Benderson is buying a portion of those assets back–reportedly at a 30 percent discount.
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This is fairly incredible. Speculation has been that values on retail properties would fall 40 percent peak to trough. But the peak on values wasn’t reached until 2007. The fact that Benderson is buying properties at a 30 percent discount to 2004 values is a bit of a shocker.

The deal in 2004 between the companies works out to $122.34 per square foot. That is right in line with data from Real Capital Analytics. According to the firm, the average price on closed strip center deals in the first quarter of 2004 was $121.80 per square foot. However, values on strip centers didn’t peak until the second quarter of 2007. Then, the average price on closed strip center deals was $180.69 per square foot. Similarly, the average cap rate on closed deals in the first quarter of 2004 was 8.3 percent vs. a low of 6.6 percent reached in the second quarter of 2007.

Per asset, the 2004 deal works out to about $21 million per property. If the $160 million to $175 million price range is correct, that puts the price per asset at between $14.5 million and $16 million. If you do the math, if the Benderson portfolio had traded at the peak of the market in 2007–at $180.69 per square foot–the total portfolio would have been worth $3.4 billion, or $30.8 million per asset. That means–potentially–that these assets traded about 50 percent lower than what they were potentially worth at the peak of the market.

emphasis added

The drop in value is quite severe and surpasses even the most pessimistic estimates in terms of price oscilliation for retail real estate. All in all, not a bad deal for Benderson which is buying back what it sold 5 years ago at a $0.70 on the dollar.

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