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Investors to face ‘price erosion’ in US in coming year

There will be little relief for real estate investors in the short-term with commercial property prices set to drop by up to 20 percent next year.

According to research by real estate investment firm Blumberg Capital Partners, the remainder of 2008 could see “significant price erosion” in commercial real estate in the US – by as much as 15 percent this year and up to 20 percent in 2009. The firm said maturing commercial real estate debt and limited refinancing options would push prices down.

Blumberg chairman and chief executive Philip Blumberg said in a statement that buyers had “unrealistic” expectations about the prices that could be achieved, anticipating that capital, as well as credit, would continue to flow. “A number of commercial property investors who bought since 2005 are now finding that they overpaid and are overleveraged, with few avenues to refinance,” he said.

The Florida-based firm said it had liquidated the majority of its real estate funds, as well as buying out its investment partners, to get rid of its debt. The firm is also planning new fundraising and investments for the coming year, saying it would explore commercial real estate, distressed debt and European REITs.

Despite some opportunities for buying commercial real estate, Blumberg added that he did not expect the commercial real estate sector to bottom out before the middle of 2009 or 2010.