Posted on Wednesday, December 8, 2010
There are two major, recognized price indices for commercial property. The Moodys/REAL Commercial Property Price Index (CPPI) tracks price changes for commercial real estate properties1. The index methodology is based on the analysis of completed sales transactions through repeat-sales regression and is based on the Real Capital Analytics database of commercial transactions over $2.5 million.
An alternative available index is the Green Street Advisors index, which tracks CRE prices in the portfolios of real estate investment trusts. The index is based on negotiated and contracted property prices. The index is weighted by asset value within each property sector.
The two indices currently report widely divergent price trends. Green Street's Commercial Property Price Index was reported to be up by 30 percent in September compared to last year; Moody's/REAL CPPI was up .9 percent. There are apparently several reasons for this divergence.
• The Moody's index tracks all property sales of $2.5 million or more, looking only at transactions that have closed.
• In contrast, the Green Street index tracks 47 real estate investment trusts with $400 billion of assets. The index reflects the valuations assigned to the REIT portfolios; more weight is given to large trades.
As of September trophy properties were reported as commanding above market prices. These are the types of properties prominent in the Green Street index. In contrast, the Moodys/REAL index is more broadly based. The two indices appear to measure different market segments (Class A vs. total market) and show the current bifurcation of the market.
1In additional to the national all-property index available on a monthly basis, national quarterly indices for each of the four major property type sectors (office, apartment, industrial, retail), selected annual-frequency indices for specific property sectors in specific metropolitan areas, and primary markets quarterly indices for the top 10 metropolitan areas in the major property types are available. "REAL" is an abbreviation for "Real Estate Analytics LLC," which developed the index in conjunction with MIT.