Headlines
“Nearly Half of Commercial Mortgages that Mature in 2011 are Underwater”
As I was inputting this week’s Monday’s Numbers data, I re-read last week’s headline, and finding it both disturbing and unnerving, went back and re-read the Trepp LLC underlying study. The following are what I saw as the key takeaways from the report:
- Approximately one-half of the estimated $346 billion of commercial real estate mortgages maturing in 2011 have principal balances in excess of their market value!
- An estimated 63 percent of the $360 billion of commercial real estate mortgage loans currently held by commercial banks, insurance companies, and CMBS trusts maturing in 2012 have principal balances in excess of their market value!
- This percentage declines slightly in 2013, to 61 percent of $367 billion of loans maturing in 2013 and to 55 percent of the $339 billion of loans maturing in 2014. Rounding out the first half of the current decade, Trepp estimates 75 percent of commercial real estate mortgages maturing in 2015 will have principal balances in excess of their market values.
What these numbers tell me is that acquisition of loans sold by financial institutions and supplying “rescue” capital to financially upside down borrowers will be among the most profitable “high risk” commercial real estate investment strategies for the foreseeable future.
Monday’s Numbers
The Commercial Mortgage Alert Trepp weekly survey (below) of 15 active portfolio lenders came in five to six basis points during the survey period, most likely in response to 10-year Treasury bonds widening approximately 30 basis points during the period.
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 | 7/1/11 | |
Office | 342 | 214 | 181 |
Retail | 326 | 207 | 173 |
Multifamily | 318 | 188 | 163 |
Industrial | 333 | 201 | 168 |
Average Asking Spread | 330 | 203 | 171 |
10-Year Treasury | 3.83% | 3.29% | 3.18% |
The Cushman & Wakefield Sonnenblick-Goldman Survey for the period ended July 7 showed fixed and floating rate spreads remaining unchanged in most property sectors during the survey period with financing remaining available at attractive and affordable rates.
Property Type | Mid-Point of Fixed Rate Commercial Mortgage Spreads For 5 Year Commercial Real Estate Mortgages | ||||
12/16/10 | 3/31/11 | 6/2/11 | 6/16/11 | 7/7/11 | |
Multifamily - Non-Agency | +270 | +245 | +225 | +230 | +230 |
Multifamily – Agency | +280 | +250 | +200 | +210 | +220 |
Regional Mall | +280 | +260 | +255 | +265 | +265 |
Grocery Anchored | +280 | +260 | +245 | +250 | +250 |
Strip and Power Centers |
|
| +265 | +270 | +270 |
Multi-Tenant Industrial | +270 | +265 | +245 | +255 | +260 |
CBD Office | +280 | +260 | +250 | +255 | +260 |
Suburban Office | +300 | +270 | +260 | +270 | +270 |
Full-Service Hotel | +320 | +300 | +265 | +275 | +285 |
Limited-Service Hotel | +400 | +325 | +300 | +310 | +310 |
5-Year Treasury | 2.60% | 2.23% | 1.62% | 1.52% | 1.64% |
Source: Cushman & Wakefield Sonnenblick Goldman. | |||||
Property Type | Mid-Point of Fixed Rate Commercial Mortgage Spreads For 10 Year Commercial Real Estate Mortgages | ||||
12/1610 | 3/31/11 | 6/2/11 | 6/16/11 | 7/7/11 | |
Multifamily - Non-Agency | +190 | +180 | +180 | +185 | +185 |
Multifamily – Agency | +200 | +185 | +170 | +175 | +180 |
Regional Mall | +175 | +180 | +180 | +190 | +190 |
Grocery Anchor | +190 | +185 | +175 | +200 | +200 |
Strip and Power Centers |
|
| +190 | +195 | +195 |
Multi-Tenant Industrial | +190 | +190 | +185 | +190 | +190 |
CBD Office | +180 | +180 | +180 | +190 | +190 |
Suburban Office | +190 | +190 | +190 | +195 | +195 |
Full-Service Hotel | +290 | +230 | +220 | +225 | +235 |
Limited-Service Hotel | +330 | +260 | +240 | +245 | +250 |
10-Year Treasury | 3.47% | 3.45% | 2.99% | 2.94% | 3.09% |
Source: Cushman & Wakefield Sonnenblick Goldman. | |||||
Property Type | Mid-Point of Floating-Rate Commercial Mortgage Spreads For 3 - 5 Commercial Real Estate Year Mortgages* | ||||
12/16/10 | 3/31/11 | 6/2/11 | 6/16/11 | 7/7/11 | |
Multifamily – Non-Agency | +250-300 | +225-325 | +200-275 | +200-260 | +200-250 |
Multifamily- Agency | +300 | +250-310 | +220-270 | +220-260 | +220-260 |
Regional Mall | +275-300 | +225-300 | +205-275 | +205-270 | +205-270 |
Grocery Anchored | +275-300 | +225-300 | +215-285 | +205-275 | +205-275 |
Strip and Power Centers |
|
| +235-300 | +225-300 | +225-300 |
Multi-Tenant Industrial | +250-350 | +250-350 | +230-325 | +230-325 | +230-325 |
CBD Office | +225-300 | +225-300 | +215-300 | +215-300 | +215-300 |
Suburban Office | +250-350 | +275-350 | +250-325 | +250-325 | +250-325 |
Full-Service Hotel | +300-450 | +350-450 | +350-450 | +350-450 | +350-450 |
Limited-Service Hotel | +450-600 | +400-500 | +400-500 | +400-500 | +400-500 |
1-Month LIBOR | 0.26% | 0.22% | 0.19% | 0.19% | 0.19% |
3-Month LIBOR | 0.30% | 0.28% | 0.25% | 0.25% | 0.25% |
* A dash (-) indicates a range. | |||||
Source: Cushman & Wakefield Sonnenblick Goldman. | |||||
Year-to-Date Public Equity Capital Markets
DJIA (1): +9.33%
S & P 500 (2):+6.85%
NASDAQ (3): +7.80%
Russell 2000 (4):+8.83%
MSCI U.S. REIT (5):+13.05%
_____
(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 | ||
12/31/10 | 7/8/2011 | |
3-Month | 0.12% | 0.02% |
6-Month | 0.18% | 0.06% |
2 Year | 0.59% | 0.39% |
5 Year | 2.01% | 1.50% |
10 Year | 3.29% | 3.03% |
