The Trepp survey for the week ending July 25 showed average spreads declining 2 basis points on what seems to be their inexorable path to zero. The implied rate for ten-year, modestly leveraged commercial real estate mortgages declined to 3.8 percent, 84 basis points below its level on December 31, 2013. The search for yield continues unabated, putting incredible pressure on lenders to compete for business.

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

12/31/10 12/31/11 12/31/12 12/31/13 This week (7/25/14) Last week (7/18/14) Month earlier
 Office 214 210 210 162 140 140 139
 Retail 207 207 192 160 131 133 129
 Multifamily 188 202 182 157 127 130 123
 Industrial 201 205 191 159 129 132 126
 Average spread 203 205 194 160 132 134 1.29
 10-year Treasury 3.29% 2.88% 1.64% 3.04% 2.48% 2.50% 2.57%

 

The Cushman & Wakefield Equity, Debt, and Structured Finance Group’s monthly Capital Markets Update of commercial real estate mortgage spreads, dated July 10, 2014, showed spreads coming in approximately 5 basis points since the prior survey (dated June 5) as lenders continue to compete for business; implied all-in cost ranges from 4.25  to 4.50 percent.

Ten-Year Fixed-Rate Commercial Real Estate Mortgages (as of July 10, 2014)

Property Maximumloan-to-value Class A

Class B

 Multifamily (agency) 75–80% T +170 T +170
 Multifamily (nonagency) 70–75% T +165 T +180
 Anchored retail 70–75% T +185 T +195
 Strip center 65–70% T +190 T +200
 Distribution/warehouse 65–70% T +180 T +200
 R&D/flex/industrial 65–70% T +190 T +210
 Office 65–75% T +185 T +195
 Full-service hotel 55–65% T +240 T +260
 Debt-service-coverage ratio assumed to be greater than 1.35 to 1.

 

Year-to-Date Public Equity Capital Markets

Dow Jones Industrial Average: –0.50 percent

Standard & Poor’s 500 Stock Index: +4.15 percent

NASD Composite Index (NASDAQ): +4.22 percent

Russell 2000: –4.19 percent

Morgan Stanley U.S. REIT Index: +12.02 percent

 

Year-to-Date Global CMBS Issuance
(in $ billions as of 7/25/14)

2014 2013
U.S. $49.1 $52.5
Non-U.S. 1.9 7.8
Total $51.1 $60.3
Source: Commercial Mortgage Alert.

 

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

U.S. Treasury Yields

12/31/12 12/31/13 8/1/14
 3-month 0.08% 0.07% 0.03%
 6-month 0.12% 0.10% 0.05%
 2-year 0.27% 0.38% 0.47%
 5-year 0.76% 1.75% 1.67%
 7-year 1.25% 2.45% 2.16%
 10-year 1.86% 3.04% 2.52%