According to a report issued by Trepp last week, the payoff rate of maturing commercial mortgage–backed securities (CMBS) loans continues to improve, reflecting improving commercial real estate fundamentals and strengthening in the overall economy. An incredible 74 percent of CMBS loans reaching their balloon maturity last month were repaid in full, up 15 percent month over month. The July 2013 data include many five-year loans (from the class of 2007) for which the payoff rate was 25 percent.
South Korea’s Surge in Overseas Investment
It was reported that South Korea purchased $5 billion in foreign commercial real estate during the first six months of 2013—more than double last year’s total and the highest amount by any country this year, including Singapore and Canada, which normally lead this table. Year to date, South Korea is the fourth-largest cross-border investor in U.S. real estate. Among the factors said to be driving this directional trend is the current level of tension between North and South Korea.
Monday’s Numbers
The Trepp survey for the period ending August 2, 2013, showed average spreads widening a basis point or two as the markets prepares for the Labor Day weekend, only three weeks in advance of its occurrence. CMBS issuance crossed the $54 billion threshold last week, more than two times last year’s production at this time. There is a little chatter and a little finger-pointing going on, as accusations of pro-forma underwriting and too-high loans-to-values are tossed around, but all in all everything seems in balance.
Asking Spreads over U.S. Ten-Year Treasury Bonds in Basis Points | ||||||||
12/31/09 | 12/31/10 | 12/31/11 | 12/31/12 | 7/12/13 | 7/19/13 | 7/26/13 | 8/2/13 | |
Office | 342 | 214 | 210 | 210 | 178 | 184 | 176 | 178 |
Retail | 326 | 207 | 207 | 192 | 164 | 168 | 158 | 163 |
Multifamily | 318 | 188 | 202 | 182 | 160 | 161 | 154 | 156 |
Industrial | 333 | 201 | 205 | 191 | 163 | 168 | 161 | 162 |
Average spread | 330 | 203 | 205 | 194 | 167 | 160 | 170 | 165 |
10-Year Treasury | 3.83% | 3.29% | 1.88% | 1.64% | 2.73% | 2.52% | 2.50% | 2.58% |
The Cushman & Wakefield Equity, Debt, and Structured Finance Group’s monthly survey of commercial real estate mortgage spreads was updated midweek, showing spreads widening roughly 30 basis points over the past 45 days.
Ten-Year Fixed-Rate Commercial Real Estate Mortgages (as of June 15, 2013) | |||
Property | Maximum | Class A | Class B |
Multifamily (agency) | 75–80% | T +210 | T +215 |
Multifamily (nonagency) | 70–75% | T +215 | T +220 |
Anchored retail | 70–75% | T +240 | T +250 |
Strip center | 65–70% | T +260 | T +270 |
Distribution/warehouse | 65–70% | T +240 | T +250 |
R&D/flex/industrial | 65–70% | T +255 | T +270 |
Office | 65–75% | T +230 | T +245 |
Full-service hotel | 55–65% | T +295 | T +320 |
Debt-service-coverage ratio assumed to be greater than 1.35 to 1. | |||
Year-to-Date Public Equity Capital Markets
DJIA (1): +17.71%
S&P 500 (2): +18.60%
NASDAQ (3): +21.22%
Russell 2000 (4): +23.44%
Morgan Stanley U.S. REIT (5): +4.40%
(1) Dow Jones Industrial Average; (2) Standard & Poor’s 500 Stock Index; (3) NASD Composite Index; (4) Small-capitalization segment of U.S. equity universe; (5) Morgan Stanley REIT Index.
U.S. Treasury Yields | |||
12/31/11 | 12/31/12 | 8/9/13 | |
3-Month | 0.01% | 0.08% | 0.05% |
6-Month | 0.06% | 0.12% | 0.07% |
2-Year | 0.24% | 0.27% | 0.32% |
5-Year | 0.83% | 0.76% | 1.36% |
7-Year | 1.35% | 1.25% | 1.98% |
10-Year | 1.88% | 1.86% | 2.57% |
Key Rates (in Percentages) | ||
| Current | One year prior |
Federal Funds rate | 0.05 | 0.15 |
Federal Reserve target rate | 0.25 | 0.25 |
Prime rate | 3.25 | 3.25 |
U.S. unemployment rate | 7.40 | 8.50 |
1-Month LIBOR | 0.18 | 0.24 |
3-Month LIBOR | 0.26 | 0.44 |
