The Federal Reserve Beige Book Economic Survey covering the period from the beginning of October through mid-November noted the pace of economic activity increasing from “measured” to “modest” across the various Federal Reserve Districts. Results were impacted in certain districts by Hurricane Sandy as well as corporate reticence to spend or invest until issues relating to the fiscal cliff are resolved.

From a real estate perspective, the survey noted improved home sales (obviously with the exception of the Northeast) as well as stronger results in the areas of commercial property and construction.

CMBS Delinquencies Decline

Standard & Poor’s Rating Services reported that CMBS delinquencies declined to their lowest level in 30 months, ending October at 9.66 percent, down from 9.77 percent in September. Importantly, the principal amount of loans liquidated, restructured, or modified so that they could return to current status exceeded the amount of delinquencies offerings.

The following chart details delinquency rates by property sector:

Delinquency Rate in Percent

Lodging

Retail

Multifamily

Office

Industrial

Other

Total

Current Month

10.77

8.18

13.53

9.91

10.99

5.90

9.66

Prior Month

11.02

8.26

13.13

9.96

12.53

6.22

9.77

NCREIF Property Index Posts 11th Quarter of Positive Returns 

The National Council of Real Estate Investment Fiduciaries (NCREIF) Property Index (NPI), which is comprised of 7,276 properties valued at in excess of $315 billion, posted strong returns—up 11.0 percent—for the trailing 12-months ended September 30th, reflecting continued strengthening in fundamentals in the property markets.

Highlights of the reported included the following:

  • The retail sector outperformed the NPI during the past 12 months, showing returns of 12.1 percent comprised of: community centers (10.8 percent); neighborhood centers (11.0 percent); power centers (10.3 percent); regional malls (11.9 percent); and super regional malls (15.0 percent).
  • The multifamily sector, on the strength of strong growth in net operating income, continued to outperform, yielding returns of 12.0 percent for the trailing 12-months.
  • Industrial properties, the perennial favorite of institutional investors, outperformed the NPI during the trailing 12-months, producing returns of 11.1 percent. Warehouse and R & D properties outperformed the Index while flex properties underperformed.
  • The office and hotel sectors underperformed the Index, with CBD office properties outperforming the suburban property sub-sector. 

Monday’s Numbers

According to the most recent Trepp survey, spreads came in 10 to 15 basis points, making securitized financing both extremely attractive to borrowers as well as highly competitive with sources such as 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

11/23/12

Week Earlier

Month Earlier

Office

342

214

210

213

220

215

Retail

326

207

207

202

210

199

Multifamily

318

188

202

193

198

193

Industrial

333

201

205

201

209

200

Average Spread

330

203

205

202

209

202

10-Year Treasury

3.83%

3.29%

1.88%

1.61%

1.69%

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): +6.61%
S & P 500 (2): +12.61%
NASDAQ (3): +115.55%
Russell 2000 (4):+10.93%
Morgan Stanley U.S. REIT (5):+9.26%

 (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

11/30/12

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

0.18

0.08

Federal Reserve Target Rate

0.25

0.25

Prime Rate

3.25

3.25

US Unemployment Rate

7.90

8.90

1-Month Libor

0.21

0.27

3-Month Libor

0.31

0.53