Commercial Real Estate Deals Getting Scuttled at Faster Rate

(Bloomberg) -- As the coronavirus roils debt markets and shuts down large swaths of the economy, commercial real estate deals are falling apart at much higher rate than normal.

The number of transactions across the U.S. that fell out of contract surged sixfold in March, according to new data from Real Capital Analytics Inc. Scuttled building sales accounted for 1.3% of the total activity, compared with 0.2% in February and the 0.4% monthly average from 2016 to 2019. And the worst may be yet to come.

“A rising number of busted deals shows that participants saw the growing economic calamity and realized that the assumptions they had in place for transactions no longer worked,” Jim Costello, senior vice president at Real Capital, wrote in a note accompanying the data. “The writing on the wall signals changes in price expectations.”

Another sign of weakness in the market: the buyer pool is shrinking. Between 2016 and 2019, there were an average of 2,100 unique purchasers of property each month, according to RCA. In March, that figure dipped to 790.

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