Thoughts on the Headlines

“How Real Estate Funds Are Faring in 2012”—Christenson Advisors

In a recent analysis, Christenson Advisors noted that the global private real estate fund market showed an increase in the number of funds available to investors with investors showing a greater inclination to invest in U.S.-focused funds and larger (and we assume, more diversified) funds. 

The survey noted that it is taking longer from fund launch to initial and/or final closing, with smaller funds ($250 to $500 million) facing an “increasingly challenging capital raising environment.” These conclusions are similar to those reached by one of the panels at the recent ULI Real Estate Capital Markets conference in New York City.  The report also noted: 

  • Start-up managers are less likely to raise discretionary capital than in prior years.
  • Successful smaller managers need to focus on specialized, niche strategies and themes to differentiate themselves in the market.
  • Larger investors appear to be showing an increasing interest in “bespoke” transactions, including separate accounts and club type structures.

Monday’s Numbers

The Trepp, LLC survey showed commercial mortgage spreads basically unchanged during the past month and unlikely to change barring a systemic collapse in the capital markets, which certainly is possible in our uncertain and volatile economic and political times. In our view, a systemic problem of any magnitude will likely lead to lenders looking for someplace to hide, with liquidity prized and unavailable for borrowers except the most creditworthy ones.

For now, lenders seem intent to stick to their floor pricing levels. For borrowers, it remains a time to lock in the lowest rates in memory. Sure; borrowers can wait, but for what? Nothing we can see indicates that rates will get lower, and no one is there to ring a bell at the bottom of the 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

7/19/12

Week Earlier

Month Earlier

Office

342

214

210

239

239

239

Retail

326

207

207

232

230

234

Multifamily

318

188

198

223

226

226

Industrial

333

201

205

229

230

230

Average Spread

330

203

205

231

230

232

10-Year Treasury

3.83%

3.29%

1.88%

1.49%

1.49%

1.87%

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 5 basis points, reinforcing our comments above regarding floor pricing by lenders.

Property Type

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

12/31/10

4/27/12

5/30/12

6/28/12

2/26/12

Multifamily – Non-Agency

+270

+240

+250

+245

+245

Multifamily – Agency

+280

+200

+210

+225

+225

Regional Mall

+280

+275

+300

+300

+295

Grocery Anchored

+280

+270

+295

+295

+290

Strip and Power Centers

 

+295

+320

+320

+315

Multi-Tenant Industrial

+270

+285

+305

+305

+300

CBD Office

+280

+270

+295

+300

+295

Suburban Office

+300

+290

+315

+315

+315

Full-Service Hotel

+320

+340

+360

+360

+360

Limited-Service Hotel

+400

+350

+370

+370

+370

5-Year Treasury

2.60%

0.83%

0.69%

0.69%

0.57%

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

4/27/12

5/30/12

6/28/12

7/26/12

Multifamily – Non-Agency

+190

+210

+220

+220

+220

Multifamily – Agency

+200

+170

+190

+200

+210

Regional Mall

+175

+220

+245

+245

+235

Grocery Anchor

+190

+200

+230

+235

+230

Strip and Power Centers

 

+235

+260

+255

+250

Multi-Tenant Industrial

+190

+240

+260

+260

+255

CBD Office

+180

+220

+250

+250

+245

Suburban Office

+190

+245

+270

+265

+265

Full-Service Hotel

+290

+260

+295

+290

+290

Limited-Service Hotel

+330

+290

+320

+310

+310

10-Year Treasury

3.47%

1.95%

1.62%

1.58%

1.42%

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

4/27/12

5/30/12

6/28/12

7/26/12

Multifamily – Non-Agency

+250-300

+200-250

+200-250

+200-260

+200-260

Multifamily- Agency

+300

+220-265

+220-265

+220-265

+220-265

Regional Mall

+275-300

+200-265

+210-275

+210-275

+210-275

Grocery Anchored

+275-300

+200-275

+205-275

+210-275

+210-275

Strip and Power Centers

 

+225-300

+225-300

+225-300

+225-300

Multi-Tenant Industrial

+250-350

+225-305

+235-305

+235-305

+230-305

CBD Office

+225-300

+225-300

+225-300

+225-300

+225-300

Suburban Office

+250-350

+250-325

+250-325

+250-325

+250-325

Full-Service Hotel

+300-450

+250-400

+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%

0.24%

3-Month LIBOR

0.30%

0.47%

0.47%

0.47%

0.46%

* A dash (-) indicates a range.

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


Year-to-Date Public Equity Capital Markets

DJIA (1): +7.02%|
S & P 500 (2): +10.21%
NASDAQ (3): +13.55%
Russell 2000 (4):+7.43%
Morgan Stanley U.S. REIT (5):+14.63%

 (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

7/2//12

3-Month

0.12%

0.01%

0.10%

6-Month

0.18%

0.06%

0.14%

2 Year

0.59%

0.24%

0.24%

5 Year

2.01%

0.83%

0.65%

7 Year

 

 

1.04%

10 Year

3.29%

1.88%

1.55%

                   

Key Rates (in Percentages)

 

Current

1 Mo. Prior

3 Mo. Prior

6 Mo. Prior

1 Yr. Prior

Fed Funds Rate

0.16

0.10

0.16

0.10

0.11

Federal Reserve Target Rate

0.25

0.25

0.25

0.25

0.25

Prime Rate

3.25

3.25

3.25

3.25

3.25

US Unemployment Rate

8.20

8.20

8.20

8.50

9.10

1-Month Libor

0.25

0.24

0.24

0.27

0.19

3-Month Libor

0.45

0.46

0.47

0.55

0.25