“REITs Rule…Again”  

Let’s start with the numbers: according to the FTSE NAREIT Equity REIT Index, which is comprised of 126 companies, equity REITs produced total returns equal to 18.06 percent in 2012, including dividends equal to 3.70 percent. REITs outperformed the S&P 500 Index, the Dow Jones Industrial Average, and the NASDAQ Composite Index making 2012 the fourth year (is there such a word as four-peat?) in a row that REITs have outperformed the other indices.

REITs clearly capitalized on the economy’s “bottoming out” as well as the real estate industry’s improving fundamentals in turn combined with individual and institutional investors need for income as REITs yielded significantly more than all the other equity indices. Hard asset investments such as REITs helped investors overcome anxieties produced by the Fiscal Cliff, the problems in the Euro-zone, a perceived slowdown in Asia’s, etc.

The following chart tracks the investment performance by property sector:

Property Sector

2012 Total Return

Dividend Yield

Industrial/Office

19.12%

3.58%

Retail

26.74%

3.32%

Residential

6.94%

3.74%

Diversified

12.20%

4.19%

Lodging/Resorts

12.53%

3.14%

Health Care

20.35%

4.71%

Self-Storage

19.94%

2.98%

Source: FTSE; NAREIT.

Turning to 2013, five companies have filed registration statements with the SEC to become public companies structured as REITs, as follows: 

Aviv REIT – healthcare
Five Oaks Investments – residential mortgage-backed securities
Orchid Island Capital – residential mortgage-backed securities
Gladstone Land – ownership of net leased farms and farm related property
Cyrus One – owns and operates Cincinnati Bell’s data center business 

We’ll report on their progress as they move through the registration and offering process. 

Monday’s Numbers 

The Trepp survey for the most recent period showed spreads coming in 10 to 15 basis points, reflecting the increasingly competitive position securitized lenders now occupy in the market. A few months ago, many borrowers would not consider a CMBS execution due to its perceived higher cost; today, spreads have narrowed to the point that CMBS lenders can compete, with few limitations, for literally any property in any market.    

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

12/31/12

Month Earlier

Office

342

214

210

210

222

Retail

326

207

207

192

212

Multifamily

318

188

202

182

197

Industrial

333

201

205

191

212

Average Spread

330

203

205

194

211

10-Year Treasury

3.83%

3.29%

1.88%

1.64%

1.66%

The Cushman & Wakefield Equity, Debt, and Structured Finance Commercial Mortgage Spread monthly survey of commercial mortgage spreads for the period ending January 3, 2013 showed spreads for 10-year, fixed rate mortgages, coming in approximately 5 to 10 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

12/31/11

12/31/12

 

 

Multifamily – Non-Agency

+270

+245

+200

 

 

Multifamily – Agency

+280

+255

+190

 

 

Regional Mall

+280

+300

+250

 

 

Grocery Anchored

+280

+295

+245

 

 

Strip and Power Centers

 

+320

+270

 

 

Multi-Tenant Industrial

+270

+305

+250

 

 

CBD Office

+280

+310

+230

 

 

Suburban Office

+300

+320

+250

 

 

Full-Service Hotel

+320

+350

+320

 

 

Limited-Service Hotel

+400

+360

+330

 

 

5-Year Treasury

2.60%

0.89%

0.76%

 

 

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

12/31/11

12/31/12

 

 

Multifamily – Non-Agency

+190

+205

+180

 

 

Multifamily – Agency

+200

+200

+165

 

 

Regional Mall

+175

+245

+190

 

 

Grocery Anchor

+190

+240

+185

 

 

Strip and Power Centers

 

+255

+205

 

 

Multi-Tenant Industrial

+190

+245

+205

 

 

CBD Office

+180

+250

+180

 

 

Suburban Office

+190

+265

+205

 

 

Full-Service Hotel

+290

+300

+250

 

 

Limited-Service Hotel

+330

+310

+270

 

 

10-Year Treasury

3.47%

2.00%

1.86%

 

 

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

12/31/11

12/31/12 

 

 

Multifamily – Non-Agency

+250-300

+200-250

+180-250

 

 

Multifamily- Agency

+300

+220-265

+175-230

 

 

Regional Mall

+275-300

+250-350

+210-275 

 

 

Grocery Anchored

+275-300

+240-325

+210-275

 

 

Strip and Power Centers

 

+250-350

+225-300

 

 

Multi-Tenant Industrial

+250-350

+270-350

 +210-275

 

 

CBD Office

+225-300

+275-350

 +180-250

 

 

Suburban Office

+250-350

+300-350

 +225-300

 

 

Full-Service Hotel

+300-450

+375-475

 +275-400

 

 

Limited-Service Hotel

+450-600

+375-550

+325-450

 

 

1-Month LIBOR

0.26%

0.30%

0.21%

 

 

3-Month LIBOR

0.30%

0.58%

0.31%

 

 

* A dash (-) indicates a range.

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

Year-to-Date Public Equity Capital Markets 

DJIA (1): +2.93%
S & P 500 (2): +3.22%
NASDAQ (3): +3.51%
Russell 2000 (4):3.70%
Morgan Stanley U.S. REIT (5):+2.07%

 (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

1/13/13

3-Month

0.01%

0.08%

0.07%

6-Month

0.06%

0.12%

0.10%

2 Year

0.24%

0.27%

0.26%

5 Year

0.83%

0.76%

0.78%

7 Year

 

1.25%

1.28%

10 Year

1.88%

1.86%

1.89%

                                                

Key Rates (in Percentages)

 

Current

1 Yr. Prior

Federal Funds Rate

0.16

0.07

Federal Reserve Target Rate

0.25

0.25

Prime Rate

3.25

3.25

US Unemployment Rate

7.80

8.70

1-Month Libor

0.21

0.29

3-Month Libor

0.30

0.58