Miss the presentation in Denver or at your district council of the results of the U.S. edition of Emerging Trends in Real Estate for 2013? Would you like to be the first on your block to know what 2013’s emerging trends for the Asia Pacific region are?

If so, both publications are available online at no cost: Emerging Trends: U.S. | Emerging Trends: Asia Pacific

Capital Policy

At last week’s Real Estate Roundtable Real Estate Capital Policy Advisory Committee meeting, here are some of the issues affecting the real estate industry that were discussed:

  • Fiscal Cliff: Atmosphere in Washington remains opaque as discussions continue with the objective of completing some form of agreement before year-end. Everything (such as long-term capital gains, carried interests, FIRPTA [affecting offshore investors], GSE reform, etc. remains on the table. Bottom line: as of December 10th, there are 21 days remaining until the automatic tax increases and sequestration take effect.
  • Economy: Recession renews if we do not avoid the cliff; if we do, moderate job growth (150,000+/-) continues (with still a long way to go); GDP growth projected at 2.0 percent per annum; problems in global economy are slowing down recovery of U.S. economy; U.S. corporations are showing record profits, but little inclination to invest; household metrics are improving.
  • Real Estate Capital Markets: REITs are likely to outperform the S&P 500 index again; CMBS floor pricing has declined from high fours in July to high threes today; numerous regulatory issues remain on the table (Basel III, Solvency II, the Volker Rule, CMBS risk retention, etc.); wall of refinancing remains to be dealt with between 2013 and 2020; domestic banks profit and overall health improving.

Inside the Market

In a report published last week, Cushman & Wakefield Equity, Debt & Structured Finance provided a useful current matrix for 10-year, fixed-rate commercial mortgage loans by property sector, as follows:

10-Year, Fixed Rate Ranges by Asset Class

Sector

Maximum Loan-to-Value

Class A Property

Class B/C Property

Anchored Retail

70-75%

T + 260

T + 270

Strip Center

65-70%

T + 280

T + 290

Multi-Family (Non-Agency)

70-75%

T + 210

T + 215

Multi-Family (Agency)

75-80%

T + 195

T + 200

Distribution/Warehouse

65-70%

T + 260

T + 270

R & D/Flex/Industrial

65-70%

T + 275

T + 290

Office

65-75%

T + 235

T + 250

Full Service Hotel

55-65%

T + 310

T + 335

REITs Did Not Have Much to Say for Themselves in November

According to the FTSE NAREIT Equity REIT Index, equity REITs showed total returns of -0.27 percent for the month of November after showing total returns equal to -0.84 percent in October.

Timber, for the fourth consecutive quarter, followed by healthcare, were the best performing sectors, up 2.14 percent and 2.03 percent, respectively.

The worst performing sectors were diversified and manufactured homes, down 4.06 percent and 2.96 percent, respectively. 

Monday’s Numbers

According to the most recent Trepp survey, spreads widened as much as 15 basis points, marking the end—for the moment—of the “incredible shrinking” cost of securitized mortgage debt as compared to rates quoted by commercial banks and insurance companies.

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

12/31/09

12/31/10

12/31/11

11/30/12

Week Earlier

Month Earlier

Office

342

214

210

226

213

215

Retail

326

207

207

217

202

199

Multifamily

318

188

202

202

193

193

Industrial

333

201

205

215

201

200

Average Spread

330

203

205

215

202

202

10-Year Treasury

3.83%

3.29%

1.88%

1.64%

1.63%

1.66%

The Cushman & Wakefield Equity, Debt, and Structured Finance Commercial Mortgage Spread monthly survey of commercial mortgage spreads showed spreads for 10-year, fixed rate mortgages, coming in approximately 10 to 15 basis points across all property sectors over the past 30 days.

Property Type

Mid-Point of Fixed Rate Commercial Mortgage
Spreads For 5 Year Commercial Real Estate Mortgages

12/31/10

7/26/12

9/3/12

9/27/12

11/28/12

Multifamily – Non-Agency

+270

+245

+240

+235

+200

Multifamily – Agency

+280

+225

+225

+210

+190

Regional Mall

+280

+295

+290

+285

+260

Grocery Anchored

+280

+290

+285

+280

+255

Strip and Power Centers

+315

+310

+305

+280

Multi-Tenant Industrial

+270

+300

+295

+290

+260

CBD Office

+280

+295

+285

+280

+240

Suburban Office

+300

+315

+305

+300

+260

Full-Service Hotel

+320

+360

+360

+355

+330

Limited-Service Hotel

+400

+370

+370

+365

+340

5-Year Treasury

2.60%

0.57%

0.68%

0.64%

0.63%

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

Mid-Point of Fixed Rate Commercial Mortgage
Spreads For 10 Year Commercial Real Estate Mortgages

12/31/10

7/26/12

9/3/12

9/27/12

11/28/12

Multifamily – Non-Agency

+190

+220

+210

+205

+185

Multifamily – Agency

+200

+210

+210

+195

+175

Regional Mall

+175

+235

+230

+225

+200

Grocery Anchor

+190

+230

+225

+220

+195

Strip and Power Centers

+250

+245

+240

+215

Multi-Tenant Industrial

+190

+255

+250

+245

+215

CBD Office

+180

+245

+235

+230

+190

Suburban Office

+190

+265

+260

+255

+215

Full-Service Hotel

+290

+290

+290

+285

+260

Limited-Service Hotel

+330

+310

+310

+305

+280

10-Year Treasury

3.47%

1.42%

1.64%

1.64%

1.61%

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

Mid-Point of Floating-Rate Commercial Mortgage
Spreads For 3 – 5 Commercial Real Estate Year Mortgages

12/31/10

7/26/12

9/3/12

9/27/12

11/23/12

Multifamily – Non-Agency

+250-300

+200-260

+200-260

+200-260

+180-250

Multifamily- Agency

+300

+220-265

+220-265

+220-265

+175-230

Regional Mall

+275-300

+210-275

+210-275

+210-275

+210-275

Grocery Anchored

+275-300

+210-275

+210-275

+210-275

+210-275

Strip and Power Centers

+225-300

+225-300

+225-300

+225-300

Multi-Tenant Industrial

+250-350

+230-305

+230-305

+230-305

+230-305

CBD Office

+225-300

+225-300

+225-300

+225-300

+180-250

Suburban Office

+250-350

+250-325

+250-325

+250-325

+250-300

Full-Service Hotel

+300-450

+275-400

+275-400

+275-400

+275-400

Limited-Service Hotel

+450-600

+325-450

+325-450

+325-450

+325-450

1-Month LIBOR

0.26%

0.24%

0.24%

0.24%

0.21%

3-Month LIBOR

0.30%

0.46%

0.43%

0.43%

0.31%

* A dash (-) indicates a range.
Source: Cushman & Wakefield Equity, Debt, and Structured Finance.

Year-to-Date Public Equity Capital Markets

DJIA (1): +7.67%
S & P 500 (2): +12.76%
NASDAQ (3): +14.31%
Russell 2000 (4):+10.99%
Morgan Stanley U.S. REIT (5):+11.71%

 (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

12/31/10

12/31/11

12/9/12

3-Month

0.12%

0.01%

0.10%

6-Month

0.18%

0.06%

0.15%

2 Year

0.59%

0.24%

0.27%

5 Year

2.01%

0.83%

0.62%

7 Year

1.12%

10 Year

3.29%

1.88%

1.62%

Key Rates (in Percentages)

Current

1 Yr. Prior

Federal Funds Rate

0.27

0.08

Federal Reserve Target Rate

0.25

0.25

Prime Rate

3.25

3.25

US Unemployment Rate

7.70

8.70

1-Month Libor

0.21

0.28

3-Month Libor

0.31

0.54