U.S. Home Prices Increase

According to a report from CoreLogic, a real estate data firm, U.S. home prices increased by the greatest amount since May 2006, climbing 8.3 percent in December 2012 as compared with a year earlier.

Architecture Billing Index Improves 
The Architecture Billing Index, a leading indicator of future construction activity, showed business conditions at architecture firms continuing to improve. The index, which reflects the approximate nine-to-12-month lag between architecture billings and construction starts, indicated that billings increasing during December 2012.

A “Perfect Storm”
In a recent speech, Agustin Carstens, governor of Banco de Mexico, noted that a “perfect storm” may be forming in the global economy as investors direct capital flows to emerging markets as well as to developed markets. He noted: “Risk appetite among investors has returned and the search for yield is in full force. . . . Concerns of asset-price bubbles fed by credit booms are starting to appear.”

Pension Funds Shift to Real Estate
Caisse de dépôt et placement du Québec, one of the world’s largest pension funds, announced plans to purchase $10 billion of property as a means of increasing current returns as compared with its current strategy of investing in the bond markets. After the strategic shift in asset allocation is completed, Caisse de dépôt will become one of the world’s largest property investors. The fund’s move is the latest example of a sovereign wealth fund or pension fund shifting funds from fixed-income investments to commercial property investments. Need further proof of this trend? Early last week, the Norwegian sovereign wealth fund announced it was purchasing for $600 million a 49.9 percent interest in a five-office-building portfolio owned by TIAA-CREF.

CMBS Issuance Nears $15 Billion
The commercial mortgage–backed security (CMBS) new-issue market continues apace, with $11.3 billion of transactions completed and $3.5 billion in various stages of premarketing. Projected 2013 issuance of $60 billion seems well within reach.

Who Is the Most Popular of Them All?
According to the 21st annual survey of the members of the Association of Foreign Investors in Real Estate (AFIRE), the top global cities for real estate investment are New York, London, San Francisco, Washington, D.C., and Houston. AFIRE member firms are estimated to have $2 trillion in real estate assets under management globally.

Other headline findings of the survey included the following:

  • Countries providing the most stable and secure real estate investments: the United States, Canada, Germany, Australia, and the United Kingdom.
  • Countries providing the best opportunity for capital appreciation: the United States, Brazil, the United Kingdom, and Turkey.
  • Top emerging markets for real estate investment: Brazil, China, Turkey, and India and Mexico (tied).
  • Top U.S. cities: New York; San Francisco; Washington, D.C.; Houston; and Boston.
  • Preferred property types: multifamily, industrial, retail, office, and hotel.  

Monday’s Numbers

The Trepp survey for the most recent period showed spreads basically unchanged, averaging 175 basis points, down 18 basis points year-to-date. Combined with ten-year U.S. Treasuries (which are currently trading at 2.01 percent), an all-in cost below 4.0 percent is indicated.

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

12/31/09

12/31/10

12/31/11

12/31/12

2/8/13

Month Earlier

Office

342

214

210

210

184

206

Retail

326

207

207

192

177

193

Multifamily

318

188

202

182

166

181

Industrial

333

201

205

191

173

193

Average Spread

330

203

205

194

175

193

10-Year Treasury

3.83%

3.29%

1.88%

1.64%

2.01%

1.89%

The Cushman & Wakefield Equity, Debt, and Structured Finance Group’s monthly survey of commercial mortgage spreads for the period ending January 31, 2013, showed spreads for ten-year, fixed-rate mortgages coming in approximately 20 basis points across all property sectors compared with the prior survey period. We seem to have entered the “limbo stick,” a period in which borrowers and lenders alike wonder “how low can they go.”

Property Type

Midpoint of Fixed-Rate Commercial Mortgage Spreads for Five-Year Commercial Real Estate Mortgages

12/31/10

12/31/11

12/31/12

1/31/13

Multifamily – nonagency

+270

+245

+200

+190

Multifamily – agency

+280

+255

+190

+190

Regional mall

+280

+300

+250

+240

Grocery-anchored

+280

+295

+245

+235

Strip and power centers

 

+320

+270

+260

Multitenant industrial

+270

+305

+250

+240

CBD office

+280

+310

+230

+220

Suburban office

+300

+320

+250

+240

Full-service hotel

+320

+350

+320

+310

Limited-service hotel

+400

+360

+330

+320

5-Year Treasury

2.60%

0.89%

0.76%

0.86%

Source: Cushman & Wakefield Equity, Debt, and Structured Finance.

Property Type

Midpoint of Fixed-Rate Commercial Mortgage
Spreads for Ten-Year Commercial Real Estate Mortgages

12/31/10

12/31/11

12/31/12

1/31/13

Multifamily – nonagency

+190

+205

+180

+160

Multifamily – agency

+200

+200

+165

+160

Regional mall

+175

+245

+190

+170

Grocery anchor

+190

+240

+185

+165

Strip and power centers

 

+255

+205

+185

Multitenant industrial

+190

+245

+205

+185

CBD office

+180

+250

+180

+160

Suburban office

+190

+265

+205

+185

Full-service hotel

+290

+300

+250

+230

Limited-service hotel

+330

+310

+270

+250

10-Year Treasury

3.47%

2.00%

1.86%

1.97%

Source: Cushman & Wakefield Equity, Debt, and Structured Finance.

Property Type

Midpoint of Floating-Rate Commercial Mortgage Spreads for Three- to Five-Year Commercial Real Estate Mortgages

12/31/10

12/31/11

12/31/12

1/31/13

Multifamily – nonagency

+250–300

+200–250

+180–250

+180–250

Multifamily – agency

+300

+220–265

+175–230

+175–230

Regional mall

+275–300

+250–350

+210–275

+210–275

Grocery-anchored

+275–300

+240–325

+210–275

+210–275

Strip and power centers

 

+250–350

+225–300

+225–300

Multitenant industrial

+250–350

+270–350

+210–275

+210–275

CBD office

+225–300

+275–350

+180–250

+180–250

Suburban office

+250–350

+300–350

+225–300

+225–300

Full-service hotel

+300–450

+375–475

+275–400

+275–400

Limited-service hotel

+450–600

+375–550

+325–450

+325–450

1-Month LIBOR

0.26%

0.30%

0.21%

0.21%

3-Month LIBOR

0.30%

0.58%

0.31%

0.30%

* A dash (-) indicates a range.

Source: Cushman & Wakefield Equity, Debt, and Structured Finance.

Year-to-Date Public Equity Capital Markets

DJIA (1): +6.70%
S & P 500 (2): +6.56%
NASDAQ (3): +5.71%
Russell 2000 (4): 8.69%
Morgan Stanley U.S. REIT (5): +4.49%

(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

2/16/13

3-Month

0.01%

0.08%

0.10%

6-Month

0.06%

0.12%

0.13%

2-Year

0.24%

0.27%

0.29%

5-Year

0.83%

0.76%

0.87%

7-Year

 

1.25%

1.38%

10-Year

1.88%

1.86%

2.01%

                                     

Key Rates (in Percentages)

 

Current

1 Year Prior

Federal funds rate

0.17

0.13

Federal Reserve target rate

0.25

0.25

Prime rate

3.25

3.25

U.S. unemployment rate

7.90

8.70

1-Month LIBOR

0.20

0.25

3-Month LIBOR

0.29

0.50