The Trepp survey for the week ending April 18, 2014, showed rates unchanged over the past two weeks. Every indication is that market participants are “going about their business,” i.e., borrowers are borrowing and lenders are lending. The implied interest rate for a “crème de la crème” core property located in a gateway market remains below 4.25 percent.

Asking Spreads over U.S. Ten-Year Treasury Bonds in Basis Points
(Ten-year commercial and multifamily mortgage loans
for properties with 50% to 59% loan-to-value ratios)

12/31/09

12/31/10

12/31/11

12/31/12

12/31/13

4/18/14

Month earlier

 Office

342

214

210

210

162

154

150

 Retail

326

207

207

192

160

144

143

 Multifamily

318

188

202

182

157

138

139

 Industrial

333

201

205

191

159

141

143

 Averagespread

330

203

205

194

160

144

144

 10-yearTreasury

3.83%

3.29%

0.88%

1.64%

3.04%

2.72%

2.68%

 

The Cushman & Wakefield Equity, Debt, and Structured Finance Group’s monthly Capital Markets Update of commercial real estate mortgage spreads, dated April 3, 2014, showed spreads for Class A property coming in 5 to 10 basis points with spreads for Class B property coming in as much as 15 basis points as the market at all levels becomes increasingly competitive with lenders aggressively reducing spreads to win business. For now, advantage to the borrower.

The comments accompanying the survey noted the following:

  • It was recently reported that private real estate funds have more than $100 billion of “dry powder” focused on acquisitions of property located in North America. Assuming 50 percent leverage, that represents “buying power” equal to $200 billion, or 56 percent of 2013’s estimated total real estate sales transactions.
  • Spreads for newly issued commercial mortgage–backed securities (CMBS) have remained stable to slightly tighter since January 1, 2014, with super-senior bonds trading inside 90 basis points and BBB-rated paper stable at swaps plus 345 to 395 basis points. Net of the financial-speak, what this means is spreads to borrowers continue to trend down, indicating that originators are finding it necessary to lower their profits to win business. Advantage to the borrower again.

 Ten-Year Fixed-Rate Commercial Real Estate Mortgages (as of April 3, 2014)

Property

Maximum
loan-to-value

Class A

Class B

 Multifamily (agency)

75–80%

T +165

T +170

 Multifamily (nonagency)

70–75%

T +170

T +180

 Anchored retail

70–75%

T +195

T +205

 Strip center

65–70%

T +210

T +220

 Distribution/warehouse

65–70%

T +195

T +205

 R&D/flex/industrial

65–70%

T +205

T +215

 Office

65–75%

T +190

T +200

 Full-service hotel

55–65%

T +255

T +275

 Debt-service-coverage ratio assumed to be greater than 1.35 to 1.

 

Year-to-Date Public Equity Capital Markets

Dow Jones Industrial Average: –1.30%

Standard & Poor’s 500 Stock Index: +0.21%

NASD Composite Index (NASDAQ): –2.42%

Russell 2000: –3.49%

Morgan Stanley U.S. REIT Index: +8.10%

 

Year-to-Date Global CMBS Issuance
(in $ billions as of 4/11/14)

2014

2013

U.S.

$20.5

$31.0

Non-U.S.

0.5

2.5

Total

$21.1

$33.5

Source: Commercial Mortgage Alert

 

Year-to-Date Public U.S. Treasury Yields

U.S. Treasury Yields

12/31/12

12/31/13

4/27/14

 3-month

0.08%

0.07%

0.02%

 6-month

0.12%

0.10%

0.04%

 2-year

0.27%

0.38%

0.43%

 5-year

0.76%

1.75%

1.72%

 7-year

1.25%

2.45%

2.21%

 10-year

1.86%

3.04%

2.67%