September  2009 VOL. 2

Investment Notes

Transaction activity in the first half of 2009 slumped to just $16 billion, down 80 percent from $79.8 billion in the first half of 2008, and down 93 percent from $231.4 billion in the first half of 2007, when the market was at its peak. The new numbers were provided by Jones Lang LaSalle’s U.S. Mid-Year Capital Markets bulletin.

The bulletin found that second quarter 2009 sales volume at $5.2 billion was easily the lowest total on record, representing an 83 percent decline from $30.7 billion during the same period in 2008 and a 95 percent decline from $114.7 billion 2007.

“The unprecedented level of public policy support, with $4 trillion already provided of a total $12 trillion pledged to restore the financial markets and create economic stimulus, has effectively halted an economic free-fall,” notes Kenneth Rudy, president of Jones Lang LaSalle’s Capital Markets practice. “However, it also has stalled a recovery in the commercial real-estate capital markets as banks continue to extend maturities for their borrowers, avoiding foreclosure in a practice that is becoming more commonly known as ‘delay and pray.’”

Rudy says it is unlikely that any true debt liquidity will return to the market until mid-2010 at the earliest.

Cap rates also have generally increased at least 250 basis points across major U.S. markets, with scant current transactional evidence to support precise measure of expansion.

“While we expect the slow investment market to continue through 2009, there are a number of markets that may be nearing a pricing point bottom around the world, with London leading, but that same phenomenon has yet to transfer to domestic markets,” says Josh Gelormini, vice president of Capital Markets research.

Gelormini predicts domestic investor interest will return slowly beginning by mid-2010, “though we may not again reach the heights of the 2005 to 2007 transaction market for a generation or longer.” He adds: “As the market recovers through the first several years of the next decade, $100 billion in overall commercial property volume may be considered average while $125-150 billion would be a very strong year.”