This week, we review the “how much, how little, how big, how small” of the real estate capital markets for 2013; next week, we will examine the projections, climb out on a limb, and try to forecast what 2014 will look like.
We start with the “public” real estate capital markets, i.e., real estate investment trusts (REITs).
Through November 30, 2013, REITs had completed a total of 242 equity and debt offerings, raising $73.9 billion as compared with $73.3 billion in 254 equity and debt offerings in all of 2012. All in all, it was a very strong year providing sufficient capital to fund corporate purposes from acquisitions to mergers to (selective) development.
A breakdown of REIT capital market activities as compared with 2012 follows:
| Activity | 2012 | 2013* |
| Total capital raised | $73.326 billion | $73.912 billion |
| Initial publics offerings | 8 | 18 |
| Capital raised | $1.822 billion | $5.544 billion |
| Secondary equity offerings | 106 | 119 |
| Common shares | 106 | 119 |
$35.143 billion | $34.977 billion | |
| Preferred shares | 71 | 26 |
$10.631 | $4.617 | |
| Secondary debt offerings | ||
| Unsecured debt | 69 | 79 |
$25.730 billion | $28.774 billion | |
| Secured debt | 0 | 0 |
| * As of November 30, 2013 | ||
Next, we focus on commercial mortgage–backed securities (CMBS). CMBS continued their recovery in 2013, nearly doubling 2012’s total issuance and coming within range of 1994 precrisis levels.
Global CMBS issuance in 2013 equaled approximately $98.7 billion, comprising U.S. issuance of approximately $86.1 billion and non-U.S issuance of approximately $12.5 billion. For 2012, global issuance equaled approximately $52.6 billion, comprising U.S. issuance of approximately $48.4 billion and non-U.S. issuance of approximately $4.3 billion.
Last year, U.S. CMBS delinquency rates declined significantly, ending the year at 7.43 percent as compared with 9.71 percent the prior year, a decrease of 228 basis points. Since reaching a peak of 10.34 percent in 2012, the delinquency rate has declined 291 basis points.
Multifamily (10.86) and industrial (10.46) had the highest delinquency rates as of December 31, 2013.
Sales of income-producing property are expected to exceed $300 billion in 2013 as investors increase investments in secondary and tertiary markets due to the “pricey” nature of assets in the top ten investment markets nationwide.
Spreads for conventional mortgages decreased about 50 basis points during 2013, ending the year at an average of 163 basis points. At the same time, the interest rate for ten-year bonds increased by 126 basis points, ending the year at 3.04 percent—a rate not seen in the markets since 2010. All-in, ten-year mortgages ended 2013 priced in a very livable range of 4.50 percent to 5.00 percent.
Monday’s Numbers
The Trepp survey for the period ending January 3, 2014, showed very little change over the prior period as the industry is focusing all of its attention on cleaning up after year-end and discussing strategy for 2014.
Asking Spreads over U.S. Ten-Year Treasury Bonds in Basis Points | ||||||||
12/31/09 | 12/31/10 | 12/31/11 | 12/31/12 | 12/31/13 | 1/3/14 | |||
| Office | 342 | 214 | 210 | 210 | 162 | 165 | ||
| Retail | 326 | 207 | 207 | 192 | 160 | 165 | ||
| Multifamily | 318 | 188 | 202 | 182 | 157 | 159 | ||
| Industrial | 333 | 201 | 205 | 191 | 159 | 161 | ||
| Average spread | 330 | 203 | 205 | 194 | 160 | 163 | ||
| 10-Year Treasury | 3.83% | 3.29% | .88% | 1.64% | 3.04% | 3.01% | ||
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: +26.50%
Standard & Poor’s 500 Stock Index:+29.60%
NASD Composite Index (NASDAQ): +38.32%
Russell 2000: +37.00%
Morgan Stanley U.S. REITIndex: -0.032%
U.S. Treasury Yields | |||
12/31/11 | 12/31/12 | 12/31/13 | |
| 3-Month | 0.01% | 0.08% | 0.07% |
| 6-Month | 0.06% | 0.12% | 0.10% |
| 2-Year | 0.24% | 0.27% | 0.38% |
| 5-Year | 0.83% | 0.76% | 1.75% |
| 7-Year | 1.35% | 1.25% | 2.45% |
| 10-Year | 1.88% | 1.86% | 3.04% |
