Monday’s Numbers: January 13, 2013

According to the FTSE NAREIT Equity REIT Index, equity REITs produced total returns equal to 18.06 percent in 2012, including dividends equal to 3.70 percent. REITs outperformed the S&P 500 Index, the Dow Jones Industrial Average, and the NASDAQ Composite Index making 2012 the fourth year in a row that REITs have outperformed the other indices.

January 14, 2013

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“REITs Rule…Again”

Let’s start with the numbers: according to the FTSE NAREIT Equity REIT Index, which is comprised of 126 companies, equity REITs produced total returns equal to 18.06 percent in 2012, including dividends equal to 3.70 percent. REITs outperformed the S&P 500 Index, the Dow Jones Industrial Average, and the NASDAQ Composite Index making 2012 the fourth year (is there such a word as four-peat?) in a row that REITs have outperformed the other indices.

REITs clearly capitalized on the economy’s “bottoming out” as well as the real estate industry’s improving fundamentals in turn combined with individual and institutional investors need for income as REITs yielded significantly more than all the other equity indices. Hard asset investments such as REITs helped investors overcome anxieties produced by the Fiscal Cliff, the problems in the Euro-zone, a perceived slowdown in Asia’s, etc.

The following chart tracks the investment performance by property sector:

Property Sector	2012 Total Return	Dividend Yield
Industrial/Office	19.12%	3.58%
Retail	26.74%	3.32%
Residential	6.94%	3.74%
Diversified	12.20%	4.19%
Lodging/Resorts	12.53%	3.14%
Health Care	20.35%	4.71%
Self-Storage	19.94%	2.98%
Source: FTSE; NAREIT.

Turning to 2013, five companies have filed registration statements with the SEC to become public companies structured as REITs, as follows:

Aviv REIT – healthcare
Five Oaks Investments – residential mortgage-backed securities
Orchid Island Capital – residential mortgage-backed securities
Gladstone Land – ownership of net leased farms and farm related property
Cyrus One - owns and operates Cincinnati Bell’s data center business

We’ll report on their progress as they move through the registration and offering process.

Monday’s Numbers

The Trepp survey for the most recent period showed spreads coming in 10 to 15 basis points, reflecting the increasingly competitive position securitized lenders now occupy in the market. A few months ago, many borrowers would not consider a CMBS execution due to its perceived higher cost; today, spreads have narrowed to the point that CMBS lenders can compete, with few limitations, for literally any property in any market.

Asking Spreads over U.S. Treasury Bonds in Basis Points (10-year Commercial and Multifamily Mortgage Loans with 50% to 59% Loan-to-Value Ratios)
	12/31/09	12/31/10	12/31/11	12/31/12	Month Earlier
Office	342	214	210	210	222
Retail	326	207	207	192	212
Multifamily	318	188	202	182	197
Industrial	333	201	205	191	212
Average Spread	330	203	205	194	211
10-Year Treasury	3.83%	3.29%	1.88%	1.64%	1.66%

The Cushman & Wakefield Equity, Debt, and Structured Finance Commercial Mortgage Spread monthly survey of commercial mortgage spreads for the period ending January 3, 2013 showed spreads for 10-year, fixed rate mortgages, coming in approximately 5 to 10 basis points across all property sectors over the past 30 days.

Property Type	Mid-Point of Fixed Rate Commercial Mortgage Spreads For 5 Year Commercial Real Estate Mortgages
	12/31/10	12/31/11	12/31/12
Multifamily - Non-Agency	+270	+245	+200
Multifamily – Agency	+280	+255	+190
Regional Mall	+280	+300	+250
Grocery Anchored	+280	+295	+245
Strip and Power Centers		+320	+270
Multi-Tenant Industrial	+270	+305	+250
CBD Office	+280	+310	+230
Suburban Office	+300	+320	+250
Full-Service Hotel	+320	+350	+320
Limited-Service Hotel	+400	+360	+330
5-Year Treasury	2.60%	0.89%	0.76%
Source: Cushman & Wakefield Equity, Debt, and Structured Finance.

Property Type	Mid-Point of Fixed Rate Commercial Mortgage Spreads For 10 Year Commercial Real Estate Mortgages
	12/31/10	12/31/11	12/31/12
Multifamily - Non-Agency	+190	+205	+180
Multifamily – Agency	+200	+200	+165
Regional Mall	+175	+245	+190
Grocery Anchor	+190	+240	+185
Strip and Power Centers		+255	+205
Multi-Tenant Industrial	+190	+245	+205
CBD Office	+180	+250	+180
Suburban Office	+190	+265	+205
Full-Service Hotel	+290	+300	+250
Limited-Service Hotel	+330	+310	+270
10-Year Treasury	3.47%	2.00%	1.86%
Source: Cushman & Wakefield Equity, Debt, and Structured Finance.

Property Type	Mid-Point of Floating-Rate Commercial Mortgage Spreads For 3 - 5 Commercial Real Estate Year Mortgages
	12/31/10	12/31/11	12/31/12
Multifamily – Non-Agency	+250-300	+200-250	+180-250
Multifamily- Agency	+300	+220-265	+175-230
Regional Mall	+275-300	+250-350	+210-275
Grocery Anchored	+275-300	+240-325	+210-275
Strip and Power Centers		+250-350	+225-300
Multi-Tenant Industrial	+250-350	+270-350	+210-275
CBD Office	+225-300	+275-350	+180-250
Suburban Office	+250-350	+300-350	+225-300
Full-Service Hotel	+300-450	+375-475	+275-400
Limited-Service Hotel	+450-600	+375-550	+325-450
1-Month LIBOR	0.26%	0.30%	0.21%
3-Month LIBOR	0.30%	0.58%	0.31%
* A dash (-) indicates a range.
Source: Cushman & Wakefield Equity, Debt, and Structured Finance.

Year-to-Date Public Equity Capital Markets

DJIA ⁽¹⁾: +2.93%
S & P 500^(2):+3.22%
NASDAQ⁽³⁾: +3.51%
Russell 2000 ⁽⁴⁾:3.70%
Morgan Stanley U.S. REIT ⁽⁵⁾:+2.07%

^{(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	1/13/13
3-Month	0.01%	0.08%	0.07%
6-Month	0.06%	0.12%	0.10%
2 Year	0.24%	0.27%	0.26%
5 Year	0.83%	0.76%	0.78%
7 Year		1.25%	1.28%
10 Year	1.88%	1.86%	1.89%

Key Rates (in Percentages)
	Current	1 Yr. Prior
Federal Funds Rate	0.16	0.07
Federal Reserve Target Rate	0.25	0.25
Prime Rate	3.25	3.25
US Unemployment Rate	7.80	8.70
1-Month Libor	0.21	0.29
3-Month Libor	0.30	0.58

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Stephen Blank

Stephen R. Blank joined ULI in December 1998 as Senior Fellow, Finance. His primary responsibilities include: expanding ULI’s real estate capital markets information and education programs; authoring real estate capital market commentary; participating as a principal researcher and adviser for the Emerging Trends in Real Estate series of publications; organizing and participating in real estate capital markets programs at ULI events worldwide; and participating in industry meetings, seminars, and conferences. Prior to joining ULI, Blank served from December 1993 to November 1998 as Managing Director, Real Estate Investment Banking of Oppenheimer & Co., Inc. His responsibilities included: structuring, underwriting, and executing corporate financings including initial public offerings of common and preferred shares, unsecured debentures, and convertible bonds; property acquisitions, dispositions, and financing; and financial advisory services including mergers and acquisitions, corporate restructurings, and recapitalizations.