Stephen Blank’s market commentary will return next week. 

The Trepp survey for the period ending March 14, 2014, showed spreads unchanged across all product categories, with the implied ten-year rate for properties with 50 percent to 59 percent loan-to-value ratios remaining in the 4.25 pecent range.

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

4/14/14

Month earlier

 Office

342

214

210

210

162

151

152

 Retail

326

207

207

192

160

141

148

 Multifamily

318

188

202

182

157

136

141

 Industrial

333

201

205

191

159

139

144

 Average spread

330

203

205

194

160

142

146

 10-year Treasury

3.83%

3.29%

0.88%

1.64%

3.04%

2.75%

2.75%

The most recent Cushman & Wakefield (C&W) Equity, Debt, and Structured Finance Group’s monthly Capital Markets Update of commercial real estate mortgage spreads, dated March 5, 2014, showed spreads unchanged during the most recent survey period.

In its comment accompanying the survey, C&W noted the following:

  • Floating-rate lenders (commercial mortgage–backed securities [CMBS], commercial banks, and public and private debt funds) are becoming increasingly active. Floating-rate loans are often used to finance transition properties, allowing the borrower to prepay without penalty, increase the loan based on increases in cash flow (and therefore property value), and pay for tenant and other capital improvements. Loans are priced at LIBOR plus a spread in the high 100s to 400s. 
  • Real Capital Analytics reported that U.S. real estate investment from China tripled last year while investment from Middle Eastern sources doubled during the period.
  • CMBS delinquencies decreased for the ninth-consecutive month. Trepp LLC noted that this is the first time the rate has been below 7 percent since February 2010. Today’s rate is 264 basis points below where it stood a year ago.

 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 +175

T +180

 Multifamily (nonagency)

70–75%

T +185

T +195

 Anchored retail

70–75%

T +205

T +220

 Strip center

65–70%

T +220

T +235

 Distribution/warehouse

65–70%

T +195

T +210

 R&D/flex/industrial

65–70%

T +210

T +230

 Office

65–75%

T +195

T +215

 Full-service hotel

55–65%

T +255

T +280

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

 

Year-to-Date Public Equity Capital Markets

Dow Jones Industrial Average: –1.65%

Standard & Poor’s 500 Stock Index: +0.98%

NASD Composite Index (NASDAQ): +2.40%

Russell 2000: +2.59%

Morgan Stanley U.S. REIT Index: +5.30%

 

Year-to-Date Global CMBS Issuance
(in $ billions as of 3/7/14)

2014

2013

U.S.

$15.6

$21.6

Non-U.S.

0.5

2.5

Total

$16.1

$24.1

Source: Commercial Mortgage Alert

 

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

U.S. Treasury Yields

12/31/12

12/31/13

3/12/14

 3-month

0.08%

0.07%

0.05%

 6-month

0.12%

0.10%

0.06%

 2-year

0.27%

0.38%

0.43%

 5-year

0.76%

1.75%

1.71%

 7-year

1.25%

2.45%

2.30%

 10-year

1.86%

3.04%

2.75%