Commercial property buyers and sellers remain far apart

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Despite some improvements in the economy, potential buyers and sellers of Los Angeles-area commercial real estate are still far apart in their perceptions of what prices should be, an investment bank said Monday.

So few properties have sold in recent months that it’s hard to establish a baseline for prices and expected rates of returns for investors.

One sign favors sellers: Cap rates -- determined by dividing a property’s net operating income by its sales price -- are coming down. In a seller’s market cap rates are low, with prices relatively high.

Another sign favors buyers: Rents have been coming down and vacancy has been going up for more many months. That pattern is expected to continue well into this year because the county suffers from double-digit unemployment, a soft housing market and declining household incomes, according to the report from Irvine-based Johnson Capital. When rents and occupancy fall, a property loses value.

‘While the recent improvement in the stock market and apparent stabilization of the banking system has prompted optimistic reports from the media, households are still feeling the effect of the ongoing recession,’ the report said. ‘Los Angeles’ commercial real estate market will continue to bear the burden of the economic downturn until unemployment declines and payrolls begin to expand once again.’

Would-be buyers still have a hard time finding financing to make purchases, Johnson Capital said, but the lending environment has improved considerably from a year ago.

-- Roger Vincent