The Trepp survey for the week ending July 11, 2014, showed spreads widening about two basis points as the financial markets tried to process the twin geopolitical upheavals that grabbed everyone’s attention last week. It’s not easy trying to run a financial business when you have to worry about capital fleeing the markets in search of safety and liquidity (i.e., U.S. Treasury securities). The implied rate for ten-year, modestly leveraged commercial real estate mortgages remains at or slightly below 4.0 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)

  12/31/10 12/31/11 12/31/12 12/31/13 This week
(7/11/14)
Last week
(7/4/14)
Month earlier
 Office 214 210 210 162 144 141 149
 Retail 207 207 192 160 137 135 141
 Multifamily 188 202 182 157 132 130 134
 Industrial 201 205 191 159 135 132 136
 Averagespread 203 205 194 160 137 135 140
 10-yearTreasury 3.29% 2.88% 1.64% 3.04% 2.53% 2.65% 2.65%

 

The Cushman & Wakefield Equity, Debt, and Structured Finance Group’s monthly Capital Markets Update of commercial real estate mortgage spreads, dated July 10, 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.

In its “Market Commentary,” C&W noted that issuance of commercial mortgage–backed securities (CMBS) had declined 8 percent during the first half of 2014 but was expected to increase during the second half of the year as there is almost $20 billion of deals in the pipeline.

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

Property Maximum
loan-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: +3.16 percent

Standard & Poor’s 500 Stock Index: +7.03 percent

NASD Composite Index (NASDAQ): +6.12 percent

Russell 2000: –1.03 percent

Morgan Stanley U.S. REIT Index: +14.97 percent

 

Year-to-Date Global CMBS Issuance

(in $ billions as of 7/18/14)

2014 2013
U.S. $44.1 $49.0
Non-U.S. 1.2 7.4
Total $45.3 $53.7
Source: Commercial Mortgage Alert.

 

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

U.S. Treasury Yields

  12/31/12 12/31/13

7/19/14

 3-month 0.08% 0.07% 0.02%
 6-month 0.12% 0.10% 0.05%
 2-year 0.27% 0.38% 0.51%
 5-year 0.76% 1.75% 1.69%
 7-year 1.25% 2.45% 2.14%
 10-year 1.86% 3.04% 2.50%