May Commercial Real Estate Sales Slump

Real Capital Analytics, New York, reported commercial property sales sank again in May as the COVID-19 crisis kept investors on the sidelines.

Transaction volume fell to the lowest level for a May since 2010. No major property types escaped the “continuing rout,” RCA said.

Just 14 hotel assets traded nationwide during the month, the report said. The industrial sector took a smaller hit than other sectors, but industrial sales volume still fell 70 percent compared to a year ago.

Reports of potentially distressed assets have increased to more than $81 billion for the year through May. But actual distress has remained relatively low except for hotel and retail properties, the report said.

RCA Senior Manager of Analytics Alexis Maltin said COVID-19 is “scuppering” commercial real estate transactions worldwide, with the pandemic making it harder to complete deals and upending financial and economic projections. “The number of terminated contract deals as a percentage of closed transactions has jumped across the U.S., Europe and Asia-Pacific as the tally of completed transactions in those geographies has also sunk,” she said.

U.S. deals that fell out of contract reached 2.9 percent of closed deals in May, up from 2.1 percent in April and 0.7 percent in March. Though May’s level of failed deals is more than seven times the average seen between 2015 and 2019, it remains far below peak Great Recession levels, when deals falling apart represented 12.8 percent of completed deals in January 2009.

Based on dollar volume, Mirae Asset’s termination of its [$5.8 billion] plan to purchase U.S. luxury hotels from Anbang Insurance is the largest busted transaction to date, Maltin said.

In Europe, collapsed deals as a percentage of closed deals totaled 3 percent in May, 200 basis points above the continent’s long-term average. Most European deals that fell out of contract were concentrated in the U.K. and were generally within the office and retail asset classes.

The Asia-Pacific region saw a lower percentage of deals fall out of contract in May than in April at 2.6 percent compared to 4.5 percent. But May’s 2.6 percent figure was 120 basis points above the long-term average.

“In May, Blackstone ended its discussions to acquire Soho China, making it the largest busted transaction in the [Asia-Pacific] region,” Maltin said.