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Is the Gap Between Buyer-Seller Price Expectations Closing?

Commercial property price expectations range across the board, depending on the local market and quality of the asset.

By Erika Morphy | Updated on May 21, 2008

Florida was one of the first states in which real estate began its meltdown. It is not surprising, therefore, that Christopher Hurn, president, CEO and co-founder of real estate lender Mercantile Commercial Capital, in Altamonte Springs, FL., has seen significant reductions in the price of many commercial assets. Even Hurn, though, was taken aback by the recent price discount on one condo development in Orlando. “The developer slashed prices by $110 per sf — from $390 to $280 per sf.” The building began development in late 2006 — not quite the height of the market but still high enough to allow for a sharp fall. “Even taking that into consideration,” Hurn says, “a $110 per sf cut in price is a significant drop.”

Hurn handles mostly small business owners and owner-occupied buildings. Still, his observations of price decreases, which he says are now common in these submarkets, is a sign that some sellers at least are beginning to accept that the capital market has up-ended price dynamics for likely a very long time.

Not all sellers though. A series of interviews conducted by GlobeSt.com show that buyer-seller expectations about price range across the board from acceptance of the new investment climate to furious refusal to budge from 2006 valuations. This standoff between buyers and sellers quickly became apparent in Q4 when investment sales dramatically slowed – a decline that was only partially attributed to new underwriting standards. Consider the Washington, DC market, a market that receives more aggressive underwriting than most. In Q1 2008, office investment sales in the DC metro area equaled some $520.8 million–down from Q4 2007′s $2 billion sales, according to figures from GVA Advantis.

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