By John Covaleski, Commercial Real Estate Direct Staff Writer

Property-investment sales for all of 2008 fell 68 percent from the previous year's volume. The decline was particularly steep in the fourth quarter, and signs are mixed at best about when activity will increase.

The $54.5 billion of commercial property-transactions that closed or went under contract last year were down from $170.4 billion in 2007, while the number of transactions dropped 54 percent to 846, according to the Commercial Real Estate Direct Property Sales Database, which tracks individual property sales of at least $10 million.

The $7.28 billion worth of deals in the fourth quarter was down 70 percent from the $29.42 billion of deals during the same period in 2008. This year's fourth-quarter volume also was down 46 percent from the previous quarter, which was down just 16 percent from the $16.3 billion in the second quarter.

Full-year sales volumes were down from 2007 in every property type, with sector declines ranging from a high of 83 percent for hotels - $3.8 billion - to a low of 60 percent for multifamily - $8.38 billion - which was helped largely by the availability of debt financing from Fannie Mae and Freddie Mac.

Investment-Sales Volumes

Source: Commercial Real Estate Direct Property Sales Database

Sales activity has been throttled by a lack of debt financing and by many investors' preference to wait for prices to fall further or for the emergence of distressed sellers who are unable to refinance maturing mortgages.

Prices were still falling through early last quarter as measured by the Moody's/Real Commercial Property Price Indices, whose pricing dropped an additional 2.4 percent in October and was down 11.5 percent from the same time a year earlier.

Meanwhile, there are indications that distressed sellers may finally emerge en masse in 2009. According to Realpoint's Lead Generator, 1,295 securitized loans with a balance of $12.7 billion were in special servicing as of December. That includes 213 loans totaling $1.4 billion that had passed their maturity dates and 32 loans with a balance of $668.8 million that are set to mature by June.

Brokerage Grubb & Ellis has predicted that this year's sales volume will increase 15 percent due largely to offerings from distressed sellers, particularly those who used floating-rate debt for acquisitions in early 2007 and 2006.

The emergence of distressed sellers anxious to make deals could also help narrow bid-ask gaps with prospective buyers. Those gaps, which had been most prevalent in the first three quarters, began narrowing noticeably in October as capitalization rates rose across all sectors, according to Real Capital Analytics.

But investor demand could be thwarted by a continued stalled economy that is expected to cut tenant demand across all property types. Robert Bach, Grubb's chief economist, has predicted that the U.S. economy will lose another 2 million jobs in 2009, about the same amount lost in 2008, and will "dampen demand for all product types, resulting in negative absorption and increased vacancy."

Comments? E-mail John Covaleski or call him at (215) 504-2860, Ext. 208.