Securitized Lenders Compete on Proceeds, Amortization Periods…and RATE!

Yes, we said rate and we meant it. The recent rally in the Super Senior CMBS tranches, the most creditworthy part of the securitized capital stack, has allowed securitized originators to compete for loans by aggressively lowering interest rates. Securitized lenders now offer more than just higher loan-to-value ratios (more money), lower debt coverage ratios (more net operating income available for debt service), and modest (two year) interest-only periods; they are marketing loans with interest rates as low as 4.0 percent, narrowing the competitive band between conventional and securitized lenders.

NCREIF Property Index Continues to Amaze

The National Council of Real Estate Investment Fiduciaries National Property Index, comprised of 7,299 properties having an estimated market value of $311 billion, continued to show solid rates of return for the trailing 12-month period ending June 30. Total returns, (income plus appreciation) equaled 12 percent for the period, compared to 13.4 percent for the trailing 12-months that ended March 31.

This chart tracks the performance of the various property type sub-indexes during the first and second quarters of 2012 as well as on a trailing 12-month period ending June 30, basis:

1st Quarter 2012 (%)

2nd Quarter 2012 (%)

Trailing 12-Months (%)

Multifamily

Income

1.31

1.32

5.4

Appreciation

1.48

1.44

7.6

Total Return

2.79

2.77

13.2

Industrial

Income

1.55

1.56

6.4

Appreciation

1.15

1.35

5.6

Total Return

2.70

2.92

12.2

Office

Income

1.41

1.42

5.8

Appreciation

0.93

0.92

4.6

Total Return

2.34

2.34

10.5

Retail

Income

1.55

1.51

6.4

Appreciation

1.26

1.54

6.7

Total Return

2.81

30.4

13.4

Total Index

Income

6.4

5.8

5.9

Appreciation

6.7

4.6

5.9

Total Return

13.4

10.5

12.0

Monday’s Numbers

Quick! Drop whatever you are doing and go refinance something; how can it be any better than this?

The Trepp, LLC survey showed commercial mortgage spreads coming between 7 and 13 basis points during the survey period as securitized lenders reduced spreads to borrowers (reflecting the benefit of the recent rally in the most creditworthy CMBS bonds). The playing field is relatively level, with both insurance companies and conduits quoting loans at costs within striking distance (4+/- percent) of each other.

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

9/21

Week Earlier

Month Earlier

Office

342

214

210

223

230

234

Retail

326

207

207

215

223

223

Multifamily

318

188

198

201

214

214

Industrial

333

201

205

215

221

223

Average Spread

330

203

205

214

223

224

10-Year Treasury

3.83%

3.29%

1.88%

1.63%

1.64%

1.65%


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 a uniform 5 basis points across all property sectors and terms 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

6/28/12

7/26/12

9/3/12

9/27/12

Multifamily – Non-Agency

+270

+245

+245

+240

+235

Multifamily – Agency

+280

+225

+225

+225

+210

Regional Mall

+280

+300

+295

+290

+285

Grocery Anchored

+280

+295

+290

+285

+280

Strip and Power Centers

 

+320

+315

+310

+305

Multi-Tenant Industrial

+270

+305

+300

+295

+290

CBD Office

+280

+300

+295

+285

+280

Suburban Office

+300

+315

+315

+305

+300

Full-Service Hotel

+320

+360

+360

+360

+355

Limited-Service Hotel

+400

+370

+370

+370

+365

5-Year Treasury

2.60%

0.69%

0.57%

0.68%

0.64%

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

6/28/12

7/26/12

9/3/12

9/27/12

Multifamily – Non-Agency

+190

+220

+220

+210

+205

Multifamily – Agency

+200

+200

+210

+210

+195

Regional Mall

+175

+245

+235

+230

+225

Grocery Anchor

+190

+235

+230

+225

+220

Strip and Power Centers

 

+255

+250

+245

+240

Multi-Tenant Industrial

+190

+260

+255

+250

+245

CBD Office

+180

+250

+245

+235

+230

Suburban Office

+190

+265

+265

+260

+255

Full-Service Hotel

+290

+290

+290

+290

+285

Limited-Service Hotel

+330

+310

+310

+310

+305

10-Year Treasury

3.47%

1.58%

1.42%

1.64%

1.64%

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

6/28/12

7/26/12

9/3/12

9/27/12

Multifamily – Non-Agency

+250-300

+200-260

+200-260

+200-260

+200-260

Multifamily- Agency

+300

+220-265

+220-265

+220-265

+220-265

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

+235-305

+230-305

+230-305

+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

+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%

0.24%

3-Month LIBOR

0.30%

0.47%

0.46%

0.43%

0.43%

* A dash (-) indicates a range.

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


Year-to-Date Public Equity Capital Market

DJIA (1): +9.98%
S & P 500 (2): +14.56%
NASDAQ (3): +19.62%
Russell 2000 (4):+13.04%
Morgan Stanley U.S. REIT (5):+11.91%

 (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

9/28/12

3-Month

0.12%

0.01%

0.09%

6-Month

0.18%

0.06%

0.13%

2 Year

0.59%

0.24%

0.23%

5 Year

2.01%

0.83%

0.63%

7 Year

 

 

1.05%

10 Year

3.29%

1.88%

1.63%

                                  

Key Rates (in Percentages)

 

Current

1 Mo. Prior

3 Mo. Prior

6 Mo. Prior

1 Yr. Prior

Fed Funds Rate

0.08

0.13

0.17

0.15

0.10

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

8.10

8.30

8.20

8.30

9.10

1-Month Libor

0.21

0.23

0.25

0.24

0.24

3-Month Libor

0.36

0.42

0.46

0.47

0.37