Off the Charts: A Reversal for Real Estate After Some Mild Gains

Indexes of the two markets showed this week that the latest declines had almost wiped out the mild gains the two markets had shown after prices appeared to have hit bottom.

The Standard & Poor’s/Case-Shiller index of home prices ended February 3.3 percent below where it was a year earlier, and just 0.5 percent above the low reached in May 2009. The Moody’s/REAL Commercial Property Price Index was reported to be down 4.9 percent over the last 12 months, but still 0.8 percent above its low, reached last August.

In both cases, sales volumes are far below what they were when the markets were booming, and a large proportion of the properties that are being sold were in trouble before the sale. The National Association of Realtors estimates that about 40 percent of existing homes that changed hands in March were either in foreclosure or were so-called short sales in which the house was sold for less than was owed on the existing mortgage.

The commercial property index, which is based on data collected by Real Capital Analytics, shows that 29 percent of transactions in February involved distressed properties — including those already in foreclosure or default, as well as those whose owners had filed for bankruptcy.

“Only when the share of distressed sales meaningfully drops off will we be able to enter the recovery phase,” said Tad Philipp, Moody’s director of commercial real estate research.

As can be seen from the accompanying charts, home prices nationally peaked in 2006 but did not begin to plunge until 2007.

At first, that was widely viewed as a result of problems in the subprime mortgage market. Commercial real estate prices rose until early 2008, but then declined rapidly. The latest values for the indexes show national home prices down 31 percent from peak levels, while the commercial real estate index shows a fall of 45 percent.

The charts show the trend of prices since December 2000. Home prices are about 27 percent higher than they were then, but commercial real estate is up just 6 percent. Meanwhile, in a tortoise-versus-hare tale, home rental rates are higher than they ever were even though they failed to boom when real estate prices soared.

Both indexes are based on repeat sales of the same property, and the relative lack of commercial property transactions — the index counted only 107 in February for more than $2.5 million each — means that the figures are far from exact. But they do show trends.

According to data from Moody’s, hotels and apartments are in the most distress, with about 16 percent of loans in each category classified as delinquent. About 10 percent of loans on industrial property are in trouble, while the figures for offices and retail properties are lower, at around 7 percent.

Over all, the proportion of commercial loans in distress climbed from under 1 percent at the end of 2008 to over 9 percent now. But it has been stable in recent months, providing some hope that the market is no longer deteriorating.

On a regional basis, the same markets tend to have problems in both commercial and residential real estate. The three states with the highest proportion of commercial loans in distress, according to Moody’s, are Nevada, Arizona and Michigan. In Nevada, more than 30 percent of loans are classified as being in trouble, nearly double Arizona’s 16 percent figure.

Floyd Norris comments on finance and the economy on his blog at nytimes.com/norris.

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Off the Charts: A Reversal for Real Estate After Some Mild Gains

Indexes of the two markets showed this week that the latest declines had almost wiped out the mild gains the two markets had shown after prices appeared to have hit bottom.

The Standard & Poor’s/Case-Shiller index of home prices ended February 3.3 percent below where it was a year earlier, and just 0.5 percent above the low reached in May 2009. The Moody’s/REAL Commercial Property Price Index was reported to be down 4.9 percent over the last 12 months, but still 0.8 percent above its low, reached last August.

In both cases, sales volumes are far below what they were when the markets were booming, and a large proportion of the properties that are being sold were in trouble before the sale. The National Association of Realtors estimates that about 40 percent of existing homes that changed hands in March were either in foreclosure or were so-called short sales in which the house was sold for less than was owed on the existing mortgage.

The commercial property index, which is based on data collected by Real Capital Analytics, shows that 29 percent of transactions in February involved distressed properties — including those already in foreclosure or default, as well as those whose owners had filed for bankruptcy.

“Only when the share of distressed sales meaningfully drops off will we be able to enter the recovery phase,” said Tad Philipp, Moody’s director of commercial real estate research.

As can be seen from the accompanying charts, home prices nationally peaked in 2006 but did not begin to plunge until 2007.

At first, that was widely viewed as a result of problems in the subprime mortgage market. Commercial real estate prices rose until early 2008, but then declined rapidly. The latest values for the indexes show national home prices down 31 percent from peak levels, while the commercial real estate index shows a fall of 45 percent.

The charts show the trend of prices since December 2000. Home prices are about 27 percent higher than they were then, but commercial real estate is up just 6 percent. Meanwhile, in a tortoise-versus-hare tale, home rental rates are higher than they ever were even though they failed to boom when real estate prices soared.

Both indexes are based on repeat sales of the same property, and the relative lack of commercial property transactions — the index counted only 107 in February for more than $2.5 million each — means that the figures are far from exact. But they do show trends.

According to data from Moody’s, hotels and apartments are in the most distress, with about 16 percent of loans in each category classified as delinquent. About 10 percent of loans on industrial property are in trouble, while the figures for offices and retail properties are lower, at around 7 percent.

Over all, the proportion of commercial loans in distress climbed from under 1 percent at the end of 2008 to over 9 percent now. But it has been stable in recent months, providing some hope that the market is no longer deteriorating.

On a regional basis, the same markets tend to have problems in both commercial and residential real estate. The three states with the highest proportion of commercial loans in distress, according to Moody’s, are Nevada, Arizona and Michigan. In Nevada, more than 30 percent of loans are classified as being in trouble, nearly double Arizona’s 16 percent figure.

Floyd Norris comments on finance and the economy on his blog at nytimes.com/norris.

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DealBook: Blackstone Earnings Leap 58% on Real Estate Gains

Chester Higgins Jr./The New York Times Stephen A. Schwarzman, the Blackstone Group’s chairman and chief executive.

7:34 p.m. | Updated

For the Blackstone Group, the first three months of the year were something of a blast from the past.

On Thursday, the investment giant reported its strongest earnings since it went public nearly four years ago. Its quarterly profit rose 58 percent as the company continued to reap benefits from improving real estate markets.

Blackstone said that it earned $568.1 million in the quarter on $1.2 billion in revenue. Its assets under management swelled 43 percent, to $150 billion. (The profit was reported as economic net income after taxes because it excludes charges tied to the company’s initial public offering of stock. On a generally accepted accounting principles basis, the company earned $43 million, a big swing from a $121 million loss in the period a year earlier.)

“Blackstone’s first-quarter results further demonstrated our ability to generate outstanding returns for our investors and attract new capital,” Stephen A. Schwarzman, Blackstone’s chairman and chief executive, said Thursday in a conference call with analysts.

The results again show how private equity firms have rebounded from the financial crisis. As the stock and credit markets have risen, the value of buyout shops’ holdings has risen, and their ability to strike deals for a variety of assets has improved as cheap financing remains readily available.

These firms have also benefited from their ability to sell their portfolio companies through initial public offerings, allowing them to realize profits.

Blackstone has seized upon these opportunities to bolster its businesses. It has held stock offerings for holdings like Nielsen, and it plans to hold more for other companies, like Vanguard Health, Freescale Semiconductor and Kosmos Energy.

And the company has struck a few deals, notably its $9.4 billion purchase of the American malls of the Centro Properties Group, its biggest purchase since its $25 billion deal for Hilton Hotels nearly four years ago.

The Centro deal was struck through Blackstone’s huge real estate arm, which propelled the firm’s quarterly profit. The division nearly quadrupled its revenue, to $555.6 million, thanks to an improvement in real estate values, especially for hotels and commercial office buildings. That has helped bolster performance fees.

Blackstone’s best-known division, its private equity unit, reported a small decline in revenue, to $273.7 million, and disclosed a drop in investment income. The value of its holdings rose about 5 percent in the quarter, and the average paper value of those assets was marked at 1.5 times their original investments.

Hamilton E. James, Blackstone’s president, suggested in a conference call with reporters that traditional leveraged buyout deals might be out of fashion for now. With corporations embarking on a buying spree, using their piles of cash and able to pay more because of greater cost savings, buyout firms are at a competitive disadvantage.

“There’s a lot of corporate competition that has come out of the woodwork,” he said. “That has made the plain vanilla buyout pricey.”

But Blackstone is seeking other investment opportunities, he added, including some in the energy industry and in emerging markets.

Blackstone still has plenty of money to invest, with $25.5 billion in uninvested capital between its private equity and real estate units. It has finished raising capital for its sixth buyout fund and is raising money for its seventh real estate fund.

Shares in Blackstone rose 1.6 percent on Thursday, to $19.31. They remain well below the firm’s initial offering price of $31.

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