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Commercial Properties Selling for 20% to 40% Below Replacement Cost, Says Advisor


(GREENWICH, CT) -- Secondary prices are deteriorating for real estate partnerships, reports NYPPEX, a global secondary private market advisory, trading and research firm for illiquid assets.

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Laurence G. Allen

"Median secondary bids continue to decline for interests in commercial real estate partnerships relative to private equity partnerships, due to concerns about vacancies, rental rates and refinancing risks," states Laurence G. Allen, Managing Member of NYPPEX.

The group's report to investors states "secondary buyers have been acquiring interests in commercial real estate partnerships at prices 20% to 40% below the replacement cost of the underlying properties."

 This is a result of secondary buyers requiring 40% to 60% discounts to net asset values which have been written down below replacement costs, says Allen.

According to the report, secondary buyers of commercial real estate partnership interests are primarily concerned about the refinancing risk for mortgage loans originated during the 2005 to 2008 period.

Other risks include (a) loan size risk, as default rates are expected to rise for loans of $50 million or more and (b) risks associated with property type, as retail and office properties have suffered in particular under current economic conditions.

The report also provides recommendations for secondary buyers interested in purchasing interests in commercial real estate partnerships, and to current limited partners that seek to evaluate their holdings in such partnerships.

NYPPEX founded the intermediary business for secondary private equity transactions in 1998.



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