U.S. Home Prices Increase
According to a report from CoreLogic, a real estate data firm, U.S. home prices increased by the greatest amount since May 2006, climbing 8.3 percent in December 2012 as compared with a year earlier.
Architecture Billing Index Improves
The Architecture Billing Index, a leading indicator of future construction activity, showed business conditions at architecture firms continuing to improve. The index, which reflects the approximate nine-to-12-month lag between architecture billings and construction starts, indicated that billings increasing during December 2012.
A “Perfect Storm”
In a recent speech, Agustin Carstens, governor of Banco de Mexico, noted that a “perfect storm” may be forming in the global economy as investors direct capital flows to emerging markets as well as to developed markets. He noted: “Risk appetite among investors has returned and the search for yield is in full force. . . . Concerns of asset-price bubbles fed by credit booms are starting to appear.”
Pension Funds Shift to Real Estate
Caisse de dépôt et placement du Québec, one of the world’s largest pension funds, announced plans to purchase $10 billion of property as a means of increasing current returns as compared with its current strategy of investing in the bond markets. After the strategic shift in asset allocation is completed, Caisse de dépôt will become one of the world’s largest property investors. The fund’s move is the latest example of a sovereign wealth fund or pension fund shifting funds from fixed-income investments to commercial property investments. Need further proof of this trend? Early last week, the Norwegian sovereign wealth fund announced it was purchasing for $600 million a 49.9 percent interest in a five-office-building portfolio owned by TIAA-CREF.
CMBS Issuance Nears $15 Billion
The commercial mortgage–backed security (CMBS) new-issue market continues apace, with $11.3 billion of transactions completed and $3.5 billion in various stages of premarketing. Projected 2013 issuance of $60 billion seems well within reach.
Who Is the Most Popular of Them All?
According to the 21st annual survey of the members of the Association of Foreign Investors in Real Estate (AFIRE), the top global cities for real estate investment are New York, London, San Francisco, Washington, D.C., and Houston. AFIRE member firms are estimated to have $2 trillion in real estate assets under management globally.
Other headline findings of the survey included the following:
- Countries providing the most stable and secure real estate investments: the United States, Canada, Germany, Australia, and the United Kingdom.
- Countries providing the best opportunity for capital appreciation: the United States, Brazil, the United Kingdom, and Turkey.
- Top emerging markets for real estate investment: Brazil, China, Turkey, and India and Mexico (tied).
- Top U.S. cities: New York; San Francisco; Washington, D.C.; Houston; and Boston.
- Preferred property types: multifamily, industrial, retail, office, and hotel.
Monday’s Numbers
The Trepp survey for the most recent period showed spreads basically unchanged, averaging 175 basis points, down 18 basis points year-to-date. Combined with ten-year U.S. Treasuries (which are currently trading at 2.01 percent), an all-in cost below 4.0 percent is indicated.
Asking Spreads over U.S. Treasury Bonds in Basis Points | ||||||
12/31/09 | 12/31/10 | 12/31/11 | 12/31/12 | 2/8/13 | Month Earlier | |
Office | 342 | 214 | 210 | 210 | 184 | 206 |
Retail | 326 | 207 | 207 | 192 | 177 | 193 |
Multifamily | 318 | 188 | 202 | 182 | 166 | 181 |
Industrial | 333 | 201 | 205 | 191 | 173 | 193 |
Average Spread | 330 | 203 | 205 | 194 | 175 | 193 |
10-Year Treasury | 3.83% | 3.29% | 1.88% | 1.64% | 2.01% | 1.89% |
The Cushman & Wakefield Equity, Debt, and Structured Finance Group’s monthly survey of commercial mortgage spreads for the period ending January 31, 2013, showed spreads for ten-year, fixed-rate mortgages coming in approximately 20 basis points across all property sectors compared with the prior survey period. We seem to have entered the “limbo stick,” a period in which borrowers and lenders alike wonder “how low can they go.”
Property Type | Midpoint of Fixed-Rate Commercial Mortgage Spreads for Five-Year Commercial Real Estate Mortgages | |||
12/31/10 | 12/31/11 | 12/31/12 | 1/31/13 | |
Multifamily – nonagency | +270 | +245 | +200 | +190 |
Multifamily – agency | +280 | +255 | +190 | +190 |
Regional mall | +280 | +300 | +250 | +240 |
Grocery-anchored | +280 | +295 | +245 | +235 |
Strip and power centers |
| +320 | +270 | +260 |
Multitenant industrial | +270 | +305 | +250 | +240 |
CBD office | +280 | +310 | +230 | +220 |
Suburban office | +300 | +320 | +250 | +240 |
Full-service hotel | +320 | +350 | +320 | +310 |
Limited-service hotel | +400 | +360 | +330 | +320 |
5-Year Treasury | 2.60% | 0.89% | 0.76% | 0.86% |
Source: Cushman & Wakefield Equity, Debt, and Structured Finance. |
Property Type | Midpoint of Fixed-Rate Commercial Mortgage | |||
12/31/10 | 12/31/11 | 12/31/12 | 1/31/13 | |
Multifamily – nonagency | +190 | +205 | +180 | +160 |
Multifamily – agency | +200 | +200 | +165 | +160 |
Regional mall | +175 | +245 | +190 | +170 |
Grocery anchor | +190 | +240 | +185 | +165 |
Strip and power centers |
| +255 | +205 | +185 |
Multitenant industrial | +190 | +245 | +205 | +185 |
CBD office | +180 | +250 | +180 | +160 |
Suburban office | +190 | +265 | +205 | +185 |
Full-service hotel | +290 | +300 | +250 | +230 |
Limited-service hotel | +330 | +310 | +270 | +250 |
10-Year Treasury | 3.47% | 2.00% | 1.86% | 1.97% |
Source: Cushman & Wakefield Equity, Debt, and Structured Finance. |
Property Type | Midpoint of Floating-Rate Commercial Mortgage Spreads for Three- to Five-Year Commercial Real Estate Mortgages | |||
12/31/10 | 12/31/11 | 12/31/12 | 1/31/13 | |
Multifamily – nonagency | +250–300 | +200–250 | +180–250 | +180–250 |
Multifamily – agency | +300 | +220–265 | +175–230 | +175–230 |
Regional mall | +275–300 | +250–350 | +210–275 | +210–275 |
Grocery-anchored | +275–300 | +240–325 | +210–275 | +210–275 |
Strip and power centers |
| +250–350 | +225–300 | +225–300 |
Multitenant industrial | +250–350 | +270–350 | +210–275 | +210–275 |
CBD office | +225–300 | +275–350 | +180–250 | +180–250 |
Suburban office | +250–350 | +300–350 | +225–300 | +225–300 |
Full-service hotel | +300–450 | +375–475 | +275–400 | +275–400 |
Limited-service hotel | +450–600 | +375–550 | +325–450 | +325–450 |
1-Month LIBOR | 0.26% | 0.30% | 0.21% | 0.21% |
3-Month LIBOR | 0.30% | 0.58% | 0.31% | 0.30% |
* A dash (-) indicates a range. | ||||
Source: Cushman & Wakefield Equity, Debt, and Structured Finance. |
Year-to-Date Public Equity Capital Markets
DJIA (1): +6.70%
S & P 500 (2): +6.56%
NASDAQ (3): +5.71%
Russell 2000 (4): 8.69%
Morgan Stanley U.S. REIT (5): +4.49%
(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 | 2/16/13 | |
3-Month | 0.01% | 0.08% | 0.10% |
6-Month | 0.06% | 0.12% | 0.13% |
2-Year | 0.24% | 0.27% | 0.29% |
5-Year | 0.83% | 0.76% | 0.87% |
7-Year |
| 1.25% | 1.38% |
10-Year | 1.88% | 1.86% | 2.01% |
Key Rates (in Percentages) | ||
| Current | 1 Year Prior |
Federal funds rate | 0.17 | 0.13 |
Federal Reserve target rate | 0.25 | 0.25 |
Prime rate | 3.25 | 3.25 |
U.S. unemployment rate | 7.90 | 8.70 |
1-Month LIBOR | 0.20 | 0.25 |
3-Month LIBOR | 0.29 | 0.50 |