Slicing and Dicing…the Parts Are Sometimes Worth More than the Whole

Real estate entrepreneurs are inherently clever…and sometimes incredibly clever. Take the John Hancock Center in Chicago. A foreign bank and a U.S. opportunity fund?) gained control of the property by acquiring all three pieces of the junior debt encumbering the property after the fee title owner defaulted on the debt.

They then divided the property into several slices, three of which have been sold and two of which are being marketed, as follows:

  • The retail and restaurant was acquired by an institutional real estate investment manager;
  • The observation deck was acquired by a European tourism operator; and
  • The building’s broadcast tower was sold to a company with experience in broadcast transactions;
  • The office (856,000 square feet) and garage (733 parking spaces) portions are currently being marketed.

Interesting and instructive!

CMBS Issuance Could Reach $45 Billion in 2012

 With a number of single-borrower as well as multi-borrower deals in the queue, sales of commercial mortgage-backed securities could reach $45 billion in 2012, a 40 percent increase over the 2011 total. While that is only a fraction of the  historical high-water mark in 2007, it represents significant progress in the rehabilitation process and argues for a pickup in buy-sell transaction velocity in 2013.

REITs at the Three-Quarter Mark

Through September 30h, equity REITs produced total returns of 15.09 percent and are well on their way to “four-peating” (if there is such a word).

September did not have much good to say for itself. According to the FTSE NAREIT Equity REIT Index, equity REITs showed total returns of -1.78 percent for the period.

The best performing sectors during September were timber (+4.58 percent) and industrial (+4.54 percent); the worst performing sectors were regional malls (-3.96 percent) and multifamily (-3.81 percent).

Monday’s Numbers

The Trepp, LLC survey showed commercial mortgage spreads coming unchanged during the survey period. While it’s hard to see rates coming in very much, nothing would be surprising this year.

As we said last week: QUICK! Drop whatever you are doing and go refinance something; how can it get any better than this?

NOTE: The Next Issue of Monday’s Numbers Will be Published on October 22

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

9/28

Week Earlier

Month Earlier

Office

342

214

210

225

223

233

Retail

326

207

207

215

215

221

Multifamily

318

188

202

201

210

214

Industrial

333

201

205

216

222

223

Average Spread

330

203

205

214

218

223

10-Year Treasury

3.83%

3.29%

1.88%

1.74%

1.63%

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 Markets

DJIA (1): +11.40%
S & P 500 (2): +16.17%
NASDAQ (3): +20.38%
Russell 2000 (4):+13.77%
Morgan Stanley U.S. REIT (5):+12.17%

 (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

10/6/12

3-Month

0.12%

0.01%

0.10%

6-Month

0.18%

0.06%

0.14%

2 Year

0.59%

0.24%

0.26%

5 Year

2.01%

0.83%

0.67%

7 Year

 

 

1.13%

10 Year

3.29%

1.88%

1.74%

                    

Key Rates (in Percentages)

 

Current

1 Mo. Prior

3 Mo. Prior

6 Mo. Prior

1 Yr. Prior

Fed Funds Rate

0.17

0.17

0.18

0.17

0.08

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

7.80

8.10

8.20

8.20

9.00

1-Month Libor

0.22

0.23

0.25

0.24

0.24

3-Month Libor

0.35

0.41

0.46

0.47

0.38