Prices of U.S. commercial
property sold by institutional investors fell 5.8 percent in
the first quarter, marking the fourth consecutive quarterly
decline, according to an index published by the Massachusetts
Institute of Technology.

Meanwhile, buyers continue to expect to pay less for
properties, but sellers are actually expecting prices to
improve, leading to fewer deals, MIT said on Tuesday.

Nobody can sell any properties, said MIT Professor David
Geltner, director of research at the Center for Real Estate.
Liqudity has almost completely dried up.

MIT's transactions-based index (TBI) tracks prices that
institutions such as pension funds pay or receive for
commercial properties including shopping centers, apartment
complexes and office towers.

The index is down 21 percent over the past year and down by
more than a quarter from its 2007 peak. Its decline now nearly
matches the 27 percent drop in the commercial property downturn
of the late 1980s and early 1990s, according to MIT. MIT said
it publishes the only price index based on closed deals.

The index, with a base value of 100 in 1984, now stands at
169.4. It peaked at 230.3 in the second quarter of 2007.

A separate index that tracks the prices that potential
buyers are willing to pay has fallen for seven straight
quarters, and is down 39 percent from its 2007 peak.

By contrast, a measure of the prices institutional owners
of commercial properties are willing to accept was actually up
in the first quarter, creating a disconnect between supply and
demand in the market.

That is partly because many institutional investors are
deep-pocketed, carrying little debt, and do not need to sell,
Geltner said.

The most recent TBI index was based on just 19 completed
transactions during the quarter, down from 40 deals the
previous quarter and compared with about 200 near the peak. The
scarcity of deals partly reflects their size: properties are
worth, on average, about $50 million.

The first quarter could mark the nadir in market sentiment,
Geltner said, since stock prices has rebounded over the past
two months, as have shares of real estate investment trusts

The next development to watch for is an increase in
distressed property sales, he added.

That's a good development when that starts to happen
because then the market begins to reliquify, you begin to get
transactions. They're at lower prices, but you begin to get a
functioning market.

I think we're going to move into that phase in commercial
property, though we haven't seen it much yet. Time is on the
side of the buyers at this point.