This Year’s Imperative: Get Deals Wrapped by Mid-October

While chatting with a real estate investment banker recently, the subject of closing deals by year-end came up. We joked about the rush in prior periods to get deals “papered” by December 31and traded anecdotes of deals gone well, and deals gone badly.

He remarked that this year, the date to worry about had advanced to mid-October, not the traditional December 31, as he believed the U.S. capital markets could easily become literally paralyzed when confronted by the upcoming U.S. election, the near-term realities of the approaching “fiscal cliff,” the potential of a worsening of the European situation, the slowing of the global economy, etc. He said that his team was urging clients to accelerate where possible deals that they wanted to close in 2012 so as to not run the risk of being crowded out of the market when everyone realizes that time is of the essence.

I know it sounds a little “doomsday,” but given the volatility the capital markets have experienced in recent years, it also sounds like some very good advice.

Capital Invested by Strategy

Where did institutions direct their capital to be invested during the first quarter of 2012? According to an analysis by Institutional Real Estate, Inc., 50 percent of the $6.6 billion invested was allocated to “Core/Core-Plus” strategies, with 26 percent directed to value-added investments, and 24 percent focused on opportunistic investments.

Equity REIT Market Watch – August 2012

While August did not have much to say for itself in terms of the FTSE/NAREIT Equity REIT Index (up 0.20 percent), year-to-date, REITs are showing total returns of 17.54 percent.

In August, the best-performing sectors were timber (up 4.79 percent) and industrial (up 4.54 percent); the worst-performing sectors were apartments (down 3.49 percent) and manufactured homes (down 4.97 percent).

Monday’s Numbers

The Trepp, LLC survey showed commercial mortgage spreads coming in five to 10 basis points during the survey period. Floor pricing continues in effect with rates in the 4.0 percent to 5.0 percent range.

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

8/31/12

Week Earlier

Month Earlier

Office

342

214

210

233

n/a

245

Retail

326

207

207

221

n/a

232

Multifamily

318

188

198

210

n/a

225

Industrial

333

201

205

228

n/a

233

Average Spread

330

203

205

223

n/a

234

10-Year Treasury

3.83%

3.29%

1.88%

1.63%

n/a

1.47%

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 five to 10 basis points.

Property Type

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

12/31/10

5/30/12

6/28/12

7/26/12

9/3/12

Multifamily – Non-Agency

+270

+250

+245

+245

+240

Multifamily – Agency

+280

+210

+225

+225

+225

Regional Mall

+280

+300

+300

+295

+290

Grocery Anchored

+280

+295

+295

+290

+285

Strip and Power Centers

 

+320

+320

+315

+310

Multi-Tenant Industrial

+270

+305

+305

+300

+295

CBD Office

+280

+295

+300

+295

+285

Suburban Office

+300

+315

+315

+315

+305

Full-Service Hotel

+320

+360

+360

+360

+360

Limited-Service Hotel

+400

+370

+370

+370

+370

5-Year Treasury

2.60%

0.69%

0.69%

0.57%

0.68%

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

5/30/12

6/28/12

7/26/12

9/3/12

Multifamily – Non-Agency

+190

+220

+220

+220

+210

Multifamily – Agency

+200

+190

+200

+210

+210

Regional Mall

+175

+245

+245

+235

+230

Grocery Anchor

+190

+230

+235

+230

+225

Strip and Power Centers

 

+260

+255

+250

+245

Multi-Tenant Industrial

+190

+260

+260

+255

+250

CBD Office

+180

+250

+250

+245

+235

Suburban Office

+190

+270

+265

+265

+260

Full-Service Hotel

+290

+295

+290

+290

+290

Limited-Service Hotel

+330

+320

+310

+310

+310

10-Year Treasury

3.47%

1.62%

1.58%

1.42%

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

5/30/12

6/28/12

7/26/12

9/3/12

Multifamily – Non-Agency

+250-300

+200-250

+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

+205-275

+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

+235-305

+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%

0.47%

0.46%

0.43%

* A dash (-) indicates a range.

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

Year-to-Date Public Equity Capital Markets

DJIA (1): +8.91%
S & P 500 (2): +14.34%
NASDAQ (3): +20.39%
Russell 2000 (4):+13.69%
Morgan Stanley U.S. REIT (5):+16.15%

 (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

9/9/12

3-Month

0.12%

0.01%

0.10%

6-Month

0.18%

0.06%

0.13%

2 Year

0.59%

0.24%

0.25%

5 Year

2.01%

0.83%

0.64%

7 Year

 

 

1.09%

10 Year

3.29%

1.88%

1.67%

                                                  

Key Rates (in Percentages)

 

Current

1 Mo. Prior

3 Mo. Prior

6 Mo. Prior

1 Yr. Prior

Fed Funds Rate

0.17

0.14

0.16

0.12

0.13

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

1.23

0.24

0.24

0.24

0.23

3-Month Libor

0.41

0.44

0.47

0.47

0.34