The Trepp survey for the week ending August 8, 2014, showed average spreads continuing to widen. We suspect much of last week’s activity was a result of “pushback” by institutional investors reacting to tight initial offering prices of deals coming to market combined with a feeling that underwriting standards have deteriorated during the past few weeks. The implied rate for ten-year, modestly leveraged commercial real estate mortgages increased to 3.85 percent, down 79 basis points this year.

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

12/31/10 12/31/11 12/31/12 12/31/13 This week
(8/8/14)
Last week
(8/1/14)

Month
earlier

 Office 214 210 210 162 148 141 144
 Retail 207 207 192 160 140 134 137
 Multifamily 188 202 182 157 138 132 132
 Industrial 201 205 191 159 138 132 134
 Average spread 203 205 194 160 141 135 137
 10-yr Treasury 3.29% 2.88% 1.64% 3.04% 2.44% 2.48% 2.58%

 

The Cushman & Wakefield Equity, Debt, and Structured Finance Group’s monthly Capital Markets Update of commercial real estate mortgage spreads, dated August 7, showed spreads coming in approximately 5 basis points as compared with the prior survey (dated June 10) as lenders continue to compete for business; implied all-in cost ranges from 4.25 percent to 4.50 percent.

Ten-Year Fixed-Rate Commercial Real Estate Mortgages (as of August 7, 2014)
Property Maximum
loan-to-value
Class A

Class B/C

 Multifamily (agency) 75–80% T +160 T +170
 Multifamily (nonagency) 70–75% T +155 T +160
 Anchored retail 70–75% T +175 T +185
 Strip center 65–70% T +175 T +185
 Distribution/warehouse 65–70% T +175 T +185
 R&D/flex/industrial 65–70% T +185 T +190
 Office 65–75% T +175 T +185
 Full-service hotel 55–65% T +235 T +255
 Debt-service-coverage ratio assumed to be greater than 1.35 to 1.

 

Year-to-Date Public Equity Capital Markets

Dow Jones Industrial Average: +0.52 percent

Standard & Poor’s 500 Stock Index: +5.77 percent

NASD Composite Index (NASDAQ): +6.90 percent

Russell 2000: –1.89 percent

Morgan Stanley U.S. REIT Index: +14.1 percent

 

Year-to-Date Global CMBS Issuance
(in $ billions as of 8/15/14)

2014 2013
U.S. $54.9 $56.4
Non-U.S. 1.9 7.8
Total $56.8 $64.2
Source: Commercial Mortgage Alert

 

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

 

U.S. Treasury Yields

12/31/12 12/31/13

8/14/14

 3-month 0.08% 0.07% 0.03%
 6-month 0.12% 0.10% 0.06%
 2-year 0.27% 0.38% 0.42%
 5-year 0.76% 1.75% 1.57%
 7-year 1.25% 2.45% 2.34%
 10-year 1.86% 3.04% 2.40%