Tranzon Auction Properties - Real Estate Auction Blog

Commercial Stays Strong

Quarterly Newsletter - Fall 2007

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Commercial property markets remain quite solid. We are seeing good success in our auctions of commercial properties. We have noted that pricing has leveled off, but it has done so at strong levels. The underlying fundamentals appear to remain favorable.

Important to auction sellers, these strong markets have kept appetites strong for properties that have a “story” as many auction properties do. Buyers are willing to purchase properties with issues or requiring some effort to stabilize.

On the financing side, we are seeing lender tightening in this market also for the smaller, less financially strong investor-buyer. This has been going on for most of 2007 and does not appear to have gotten materially more difficult.

In recent months we have had successful sales of assisted living facilities (both operating and closed), convenience stores/service stations, retail, small office, apartments and industrial property. Commercial property is moving at auction pretty much across the board.

Properties generating cash flows are still in high demand and, as noted, there is still an appetite for turnaround situations. If there is a weakness we have detected, it is in land sales, where some of the speculative bloom has come off the rose.

Our observation of rosy conditions in the commercial area is not without some concern. We note, as do others, the relaxed underwriting of loans in recent years and the over-leveraging that appears to have been permitted in some situations. We do expect a moderate worsening in the performance of commercial loan portfolios, but we are not looking for anything resembling what we have seen in the residential market.