Last month, Archstone-Smith Trust postponed until October its $US13.5 billion ($16.3 billion) sale to a group led by Tishman Speyer Properties. Mission West Properties, the owner of commercial buildings in Silicon Valley, said on August 13 that the company's $US1.8 billion sale might fail after a bank withdrew funding.
In recent years Southern California has emerged as one of America's top markets for real estate investment, with institutional and individual investors betting that its economic growth will continue to support property appreciation.
A Houston real estate investment trust paid $US287 million last month for the One Wilshire office building in Los Angeles and a local investor spent $US200 million to acquire Sunset-Gower Studios in Hollywood.
But the area is now feeling the same angst affecting the rest of the country.
Keeping the market alive were deep-pocket investors such as pension funds and insurance companies that could still obtain loans to buy expensive real estate, said Robert White, the president of Real Capital Analytics, which provides real estate data.
Nevertheless, the recent increases in the cost of borrowing money could make pending real estate purchases less profitable in the long term, prompting some buyers to walk away or to try to negotiate a lower price, he said.
"There has been a spike in the last 30 days of deals falling out of contract," Mr White said. "People planning to close deals last month got hesitant."
Many buyers were waiting, he said. If the market calmed in coming weeks and borrowing became easier, they would proceed with their purchases. If lenders were still wary of funding real estate deals, most buyers would have to decide whether to bale out or proceed and take a loss.
"There aren't a lot of pressured sellers out there. It's not like the residential market," Mr White said. "If they can't get their prices now, they can afford to wait. Probably a lot of assets just won't trade."
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