In the latest Professor’s Corner Newsletter, Sam Chandan, Global Chief Economist for Real Capital Analytics, commented on the CPPI’s continued trifurcation between the composite index, distressed deals and the 6-city trophy index.
Apart from the dispersion of outcomes across property types, the decline in December’s aggregate index belies the continuing divergence of trends across performing and distressed assets, and across major markets and the balance of metropolitan areas. The upswing in major markets, in contrast with the broader index, was particularly evident in December’s findings.
For the six‐city trophy group – Boston, Chicago, Los Angeles, New York City, San Francisco, and Washington, DC – the index jumped by 7.0%. The December increase coincided with a spike in the six‐city repeat‐sales transaction volume, to almost $3.0 billion, fueled in large part by a rise in sales out of distress.
While distressed deals weighed down the CPPI enough turn the index negative for the firs time in 4 months. Even so, Dr. Chandan offered some words of encouragement.
As a result of this trend, sales out of distress will continue to play a role in driving the index and the interpretation of its movements. In this context, a falling value for the index is not necessarily indicative of market weakness; quite the opposite, it may suggest that sales out of distress are increasing because lenders judge that the market’s capacity to bear these sales has improved.
The CPPI is up 5.5 percent from its August, 2010 low of 105, but down 2.2 percent for the entire year of 2010 and 42.1 percent from its highs of October 2007.