It was a very quiet week, with the markets going this way and that, waiting for the opening ceremonies at the Sochi Winter Olympics. After December 2013’s disappointing jobs results, economists and analysts waited nervously for January 2014’s results. Highlights of the report included the following:

  • Payrolls increased by 113,000 in January (as compared with estimates ranging as high as 180,000);
  • The jobless rate declined from 6.7 percent to 6.6 percent;
  • The labor force participation rate increased to 63 percent from December 2013’s 62.8 percent; and
  • “U6,” a more comprehensive measure of unemployment that includes part-time workers who want to work full time but cannot due to economic conditions, stood at 12.7 percent in January—down from 13.1 percent in December and 14.4 percent a year ago.

The question now is what is the Federal Reserve going to do about continuing its current program of “tapering” (reducing) monthly purchases of U.S. Treasury securities and mortgage loans, or will it increase monthly purchases in an attempt to keep interest rates at today’s low levels?

We’re going to leave that one to the economists. While you are waiting, Bloomberg published on its website an excellent guide for reading the monthly jobs report. 

Federal Reserve Senior Loan Officer Opinion Survey 

According to the Federal Reserve’s January 2014 Senior Loan Officer Opinion Survey, U.S. banks eased (but did not abandon) standards for commercial real estate as well as other asset-backed loans, citing increased demand from borrowers as well as competition among lenders.

Now that commercial banks are pretty much deleveraged, having resolved the majority of problem loans from the recent recession and becoming increasingly profitable, they are in a position to (carefully) increase their loan books once again.

Commercial Mortgage–Backed Securities Delinquencies Continue to Decline

According to Trepp CMBS Research, “CMBS delinquency rates continued their precipitous fall in January, much like thermometers across the Upper Midwest.” Trepp’s delinquency rate declined for the eighth-straight month and now stands at 7.25 percent, down 18 basis points as compared with December 2013. The high-water mark, reached in 2012, was 10.34 percent. There are currently $38.9 billion in delinquent loans, excluding loans that are past their balloon due date, but remain current on their interest payments.

U.S. CMBS Delinquency Rate: 30+ Days

 January 2014

7.25%

 December 2013

7.43%

 November 2013

7.66%

 3 months ago

7.98%

 6 months ago

8.48%

 1 year ago

9.57%

Source: Trepp, LLC.

Multifamily properties continue to have the highest delinquency rate by property (10.67 percent) followed very closely by industrial assets (10.59 percent); retail properties have the lowest delinquency rate (6.13 percent) followed by the office sector.

Monday’s Numbers

The Trepp survey for the period ending January 31, 2014, showed spreads meandering along, narrowing one week just a bit and then widening just a little the next week. This was a widening-just-a-bit week (3+ basis points). Overall, pricing in the sub—5 percent range remains extremely attractive.

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

1/31/14

Month earlier

 Office

342

214

210

210

162

158

165

 Retail

326

207

207

192

160

155

165

 Multifamily

318

188

202

182

157

149

159

 Industrial

333

201

205

191

159

153

161

 Averagespread

330

203

205

194

160

154

163

 10-yearTreasury

3.83%

3.29%

0.88%

1.64%

3.04%

2.67%

3.04%

 

The most recent Cushman & Wakefield Equity, Debt, and Structured Finance Group’s monthly survey of commercial real estate mortgage spreads, dated January 8, 2014, showed spreads coming in +/–5 basis points during the survey period. 

 Ten-Year Fixed-Rate Commercial Real Estate Mortgages (as of January 8, 2014)

Property

Maximum

 loan-to-value

Class A

Class B

 Multifamily (agency)

75–80%

T +195

T +200

 Multifamily (nonagency)

70–75%

T +195

T +205

 Anchored retail

70–75%

T +205

T +210

 Strip center

65–70%

T +220

T +230

 Distribution/warehouse

65–70%

T +195

T +210

 R&D/flex/industrial

65–70%

T +210

T +225

 Office

65–75%

T +195

T +210

 Full-service hotel

55–65%

T +250

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: –4.72%

Standard & Poor’s 500 Stock Index: –2.78%
NASD Composite Index (NASDAQ): –0.84%
Russell 2000: –4.05%
Morgan Stanley U.S. REIT Index: +2.72%

Year-to-Date Global CMBS Issuance
(in $ billions as of 2/7/14)

2014

2013

 U.S.

7.7

11.3

 Non-U.S.

0.0

0.2

 Total

7.7

11.6

 Source: Commercial Mortgage Alert

 

U.S. Treasury Yields

12/31/12

12/31/13

2/7/14

 3-month

0.08%

0.07%

0.08%

 6-month

0.12%

0.10%

0.09%

 2-year

0.27%

0.38%

0.30%

 5-year

0.76%

1.75%

1.47%

 7-year

1.25%

2.45%

2.13%

 10-year

1.86%

3.04%

2.71%