The rate of decline for commercial real estate valuations isslowing across the country, says Integra Realty Resources in itsfourth-quarter Commercial Property Index Jeffrey Rogers, presidentand COO of Integra, says the deceleration has happened sooner thansome experts had assumed.

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The reason is that, "We had such a steep drop to begin with,"says Rogers. "From peak to trough, we're off about 42%. You're notgoing to fall to zero, there's going to be some base level in linewhere the economy is right now, and we just see it levelingout."

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Even with that rapid descent, says Rogers, "we are projectingfurther declines into next year, and the reason is that we have notseen demand come back yet." One factor behind that, he says, isthat "we have too much of everything. We overbuilt during thisrun-up, and it will take some time to absorb all of that." Integraprojects that valuations will continue easing downward until theend of the second quarter in 2010, with a 5% decline over the nextsix months, compared to the 11 % to 17% drops seen this year.

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This quarter's survey, which was conducted in November, showsthat lodging and retail experienced the greatest declines in valuein the current downturn, with the western states suffering thesteepest drop regionally. Office, industrial and multifamily haveseen a 3% drop in value in the past three months, with the lodgingand retail sectors experiencing a 5% drop.

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The regions with the highest rates of devaluation over the past12 months include eastern lodging, off 20%, western lodging andretail, both off 19%, western office, down 18%, and eastern office,off 17%. Those that fared comparatively well in the past 12 monthsinclude central multifamily, off 7%, central industrial, off 9%,southern industrial, off 10%, and southern multifamily and centraloffice, both 11%.

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While multifamily is historically the safest bet, in the currentcycle that sector has been suffering declines as well. "Thedownturn has been so severe that people are still starting todouble up or move back home, to a greater degree than has happenedin prior cycles," Rogers says. However, Integra notes thatmultifamily is moving toward stabilization.

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Integra's survey, which polled 59 of the company's managingdirectors across the US, also reflects the distress in themarketplace. Sixty-seven percent of Integra's valuation assignmentsin the west are classified as distressed, and 62% of itsassignments in the south. Faring better are the east centralregions with distress levels of 35% and 47%, respectively.As forwhen values will begin to turn positive again, Rogers says it boilsdown to one word: jobs. He notes the extent of the Obamaadministration's focus on jobs creation, as well as the success ofthe administration's efforts, will help determine the rate at whichemployment begins to come back.


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