Q. How has pricing been affected by the sharp drop-off in sales volume?

Alvarado: Price discovery continues to be delayed as sellers are largely unwilling to accept current bids in the absence of a strong motivation to sell. Cap rates have generally increased by an estimated 250 basis points, at a minimum, across major U.S. markets, including Dallas, although direct transaction evidence to support the precise measure of expansion remains scarce. The higher cap rates and the resulting lower pricing are the result of the higher cost and decreased ability to leverage transactions, the deteriorating market fundamentals and the increased perception of risk.

While the market is still facing real hurdles to recovery, for the first time this year, we’re seeing more proper alignment between seller and buyer expectations. We’re hopeful that more U.S. owners and buyers adjust pricing to realistic levels. In Dallas, we are already seeing both distressed sales offerings as well as nondistressed sales that exhibit the new pricing paradigm.

Gillespie: Due to historically low transaction volumes, uncertainty reins regarding property values. Market values are difficult to establish when sales comparables are not available, and this contributes to the spread between bid and ask prices. Only distressed owners have a compelling motivation to sell during a severe market dislocation such as we are experiencing now. However, potential value compression is very market- and property-specific. The properties that are most likely to retain their value are core, stabilized assets located in desirable locations in major metros with high-growth potential.

Greene: Pricing an asset in this environment is very difficult. There have been very few transactions, and therefore it is difficult to derive a suitable list of comparables. So, my first response is that pricing has been thrown into disarray because of the lack of transactions. However, a lack of transactions has minimally impacted property values. A lack of transactions is the symptom, not the illness in today’s environment. The lack of volume has removed transparency and therefore increased perceived risk. People do not know what “market” pricing is at this time. Lack of volume is a symptom, albeit a symptom with consequences.

Prices are falling for two primary reasons. The first is eroding real estate fundamentals. The second is the absolute termination of available debt capital at terms such as 10 years, interest only, under 6% fixed rate, 85% loan to value that allowed buyers to pay high prices for properties and still have the numbers work.

Hardage: Real Capital Analytics and other sources tell us overall values have declined by 25% to 30%. We believe in some cases, even more than that, depending on an asset’s rent roll exposure to rollover and credit (meaning questionable or lack thereof). Acquisition cap rates for Dallas office properties are reported to average 9%. I believe these numbers are misleading because we haven’t had enough sales in 2009 to truly frame up where average values and cap rates are. Our firm has had stabilized assets in the market where all offers came in above a 9% cap rate and the seller wasn’t willing to sell. I believe that until more “distressed” sales actually occur where buyers achieve a high 9 or even double-digit cap rate at price-per-foot values of 50% or more below replacement cost, we will continue to witness a very lethargic sales market dotted with occasional, significantly discounted “trophy” assets that fit re-emerging REIT portfolios or long-term, institutional or private holders.

Kartalis: Pricing has really been affected by an oversupply of properties of all kinds and the fact that many of the properties are not performing well enough currently to attract buyers willing to pay 2007 prices. Again, recourse borrowing, high equity requirements, overbuilding and property performance have impacted sales volumes negatively. To make their numbers work, investors have driven cap rates up about 20% from 2007, higher or lower depending upon the type of property.