A Quiet Week

Maybe it was the upcoming holiday weekend. Maybe it was worries about Cyprus’s failing financial health. Maybe it was watching the S&P 500 index reach record levels. Whatever it was, this was the quietest period we’ve seen in a very long time.

It’s not that nothing happened during the week; while there were no blockbuster acquisition—disposition—financing deals announced, plenty of mortal-sized deals happened. REITs continued to prune weaker assets and focus on their core portfolios; institutional investors continued to commitment money to both domestic as well as international investment funds as real estate remains an attractive alternative on a relative value basis, notwithstanding the record-setting performance of the stock market. Sellers came to terms with buyers.

Commercial banks, insurance companies, and securitized lenders continued to issue commitments at below 5 percent yields as spreads remain basically unchanged and are likely to go nowhere unless the capital markets “get the willies.” 10-year paper seems to have settled in the extremely attractive 175 (multifamily) to 200 (malls) basis points over 10-year U.S. Treasury range.

Most of our sources did not update their surveys this week; anecdotally, lenders we spoke with reported little to no change in spreads and terms.

Monday’s Numbers

Due to the capital markets being closed on March 29 for the Good Friday holiday, the Trepp survey was not published this week.  

Asking Spreads over U.S. Treasury Bonds in Basis Points
(Ten-Year Commercial and Multifamily Mortgage Loans with 50% to 59% Loan-to-Value Ratios)

12/31/09

12/31/10

12/31/11

12/31/12

3/15/13

Month Earlier

Office

342

214

210

210

175

180

Retail

326

207

207

192

166

163

Multifamily

318

188

202

182

157

162

Industrial

333

201

205

191

161

168

Average Spread

330

203

205

194

165

168

10-Year Treasury

3.83%

3.29%

1.88%

1.64%

1.86%

1.97%

The Cushman & Wakefield Equity, Debt, and Structured Finance Group’s monthly survey of commercial real estate mortgage spreads for the period ending March 5, 2013 showed spreads for 10-year, fixed rate mortgages, basically unchanged as compared to the prior survey period ending February 4th.

Liquidity, whether sourced privately from commercial banks and insurance companies, or publicly via the CMBS market, remains abundant and priced aggressively as lenders compete for business. 

10-Year Fixed Rate Commercial Real Estate Mortgages (as of March 5, 2013)

Property

Maximum
 Loan-to-Value

Class A

Class B

Multifamily (Agency)

75% – 80%

T +190

T +195

Multifamily (Non-Agency)

70% – 75%

T +190

T +195

Anchored Retail

70% – 75%

T +210

T +220

Strip Center

65% – 70%

T +230

T +240

Distribution/Warehouse

65% – 70%

T +210

T +220

R & D/Flex/Industrial

65% – 70%

T +225

T +240

Office

65% – 75%

T +195

T +210

Full-Service Hotel

55% – 65%

T +260

T +285

Debt service coverage ratio assumed to be greater than 1.35 to 1.

Year-to-Date Public Equity Capital Markets

DJIA (1): +11.25%
S&P 500 (2): +10.03%
NASDAQ (3): +8.21%
Russell 2000 (4): +12.03%
Morgan Stanley U.S. REIT (5): +7.12%

 (1) Dow Jones Industrial Average. (2) Standard & Poor’s 500 Stock Index. (3) NASD Composite Index.
(4) Small Capitalization segment of U.S. equity universe. (5) Morgan Stanley REIT Index.

U.S. Treasury Yields

12/31/11

12/31/12

328/13

3-Month

0.01%

0.08%

0.07%

6-Month

0.06%

0.12%

0.11%

2-Year

0.24%

0.27%

0.25%

5-Year

0.83%

0.76%

0.77%

7-Year

1.35% 

1.25%

1.24%

10-Year

1.88%

1.86%

1.87%

                                                

Key Rates (in Percentages)

 

Current

1 Yr. Prior

Federal Funds Rate

0.16

0.15

Federal Reserve Target Rate

0.25

0.25

Prime Rate

3.25

3.25

U.S. Unemployment Rate

7.70

8.70

1-Month LIBOR

0.20

0.24

3-Month LIBOR

0.28

0.47