Commercial real estate may have bottomed, Green Street says

Commercial real estate is now a bargain, and the widely expected drop in commercial property values may not occur, according to a well-known real estate analyst. Mike Kirby, director of research at Green Street Advisors Inc., said in a report today that REIT executives “who wait for distress [to make acquisitions] may not find it.” Because the commercial mortgage markets are not functioning, prices of privately held property are depressed, Mr. Kirby wrote. At the same time, REIT prices have rebounded along with most other assets. As a result, REITs now trade at about a 10% premium to the value of their holdings, he said, creating an arbitrage opportunity for REITs able to buy property. Mr. Kirby said the long-term opportunities are so favorable that REITs should continue to raise capital for acquisitions despite any short-term dilution. Last month, another prominent player in the real estate market, Martin Cohen, co-chief executive of Cohen & Steers Inc., also expressed doubt about the consensus view that distressed sales of commercial real estate are on the horizon. Commercial real estate prices appear to have bottomed this spring after falling about 40% from their peak in mid-2007, Mr. Kirby said, and have since recovered about 3%.