The Architecture Billings Index—a proxy for future construction—declined 1.3 points to 51.6 in June, remaining above the benchmark level of 50, which indicates growth in architects’ billings. Buttressing this indicator is a report noting that month-over-month multifamily starts declined 27 percent in June.

Growth in new construction in the United States remains muted, as both business generally and real estate specifically wait for growth in the economy. Morrow Equipment reported the utilization rate for commercial real estate construction cranes was 50 percent, down from 80 percent in 2008. Global sales of cranes have declined 16 percent from 2008’s level, with 65 percent of new sales in China. 

Monday’s Numbers

The Trepp survey for the period ending July 19, 2013, showed average spreads widening 10 basis points, with ten-year U.S. Treasury bonds basically unchanged during the survey period. So far, both investors and sellers seem content to talk about not doing deals at today’s (recently elevated) capitalization rate levels, preferring instead to just wait the market out.

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

12/31/09

12/31/10

12/31/11

12/31/12

6/28/13

7/5/13

7/12/13

7/19/13

Office

342

214

210

210

178

179

178

184

Retail

326

207

207

192

166

169

164

168

Multifamily

318

188

202

182

158

158

160

161

Industrial

333

201

205

191

164

163

163

168

Average spread

330

203

205

194

167

167

160

170

10-Year Treasury

3.83%

3.29%

1.88%

1.64%

2.52%

2.73%

2.52%

2.50%

The Cushman & Wakefield Equity, Debt, and Structured Finance Group’s monthly survey of commercial real estate mortgage spreads was updated midweek, showing spreads widening +/-30 basis points over the past 45 days.

Ten-Year Fixed-Rate Commercial Real Estate Mortgages (as of June 15, 2013)

Property

Maximum
 loan-to-value

Class A

Class B

Multifamily (agency)

75–80%

T +210

T +215

Multifamily (nonagency)

70–75%

T +215

T +220

Anchored retail

70–75%

T +240

T +250

Strip center

65–70%

T +260

T +270

Distribution/warehouse

65–70%

T +240

 T +250

R&D/flex/industrial

65–70%

T +255

T +270

Office

65–75%

T +230

T +245

Full-service hotel

55–65%

T +295

T +320

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

Year-to-Date Public Equity Capital Markets

DJIA (1): +18.73%
S&P 500 (2): +18.61%
NASDAQ (3): +19.66%
Russell 2000 (4): +23.45%
Morgan Stanley U.S. REIT (5): +8.18%

(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

7/26/13

3-Month

0.01%

0.08%

0.03%

6-Month

0.06%

0.12%

0.07%

2-Year

0.24%

0.27%

0.31%

5-Year

0.83%

0.76%

1.36%

7-Year

1.35%

1.25%

1.98%

10-Year

1.88%

1.86%

2.58%

                                     

Key Rates (in Percentages)

 

Current

One year prior

Federal funds rate

0.10

0.06

Federal Reserve target rate

0.25

0.25

Prime rate

3.25

3.25

U.S. unemployment rate

7.60

8.70

1-Month LIBOR

0.19

0.25

3-Month LIBOR

0.27

0.45