Thoughts on the Headlines
“How Real Estate Funds Are Faring in 2012”—Christenson Advisors
In a recent analysis, Christenson Advisors noted that the global private real estate fund market showed an increase in the number of funds available to investors with investors showing a greater inclination to invest in U.S.-focused funds and larger (and we assume, more diversified) funds.
The survey noted that it is taking longer from fund launch to initial and/or final closing, with smaller funds ($250 to $500 million) facing an “increasingly challenging capital raising environment.” These conclusions are similar to those reached by one of the panels at the recent ULI Real Estate Capital Markets conference in New York City. The report also noted:
- Start-up managers are less likely to raise discretionary capital than in prior years.
- Successful smaller managers need to focus on specialized, niche strategies and themes to differentiate themselves in the market.
- Larger investors appear to be showing an increasing interest in “bespoke” transactions, including separate accounts and club type structures.
Monday’s Numbers
The Trepp, LLC survey showed commercial mortgage spreads basically unchanged during the past month and unlikely to change barring a systemic collapse in the capital markets, which certainly is possible in our uncertain and volatile economic and political times. In our view, a systemic problem of any magnitude will likely lead to lenders looking for someplace to hide, with liquidity prized and unavailable for borrowers except the most creditworthy ones.
For now, lenders seem intent to stick to their floor pricing levels. For borrowers, it remains a time to lock in the lowest rates in memory. Sure; borrowers can wait, but for what? Nothing we can see indicates that rates will get lower, and no one is there to ring a bell at the bottom of the market.
Asking Spreads over U.S. Treasury Bonds in Basis Points | ||||||
12/31/09 | 12/31/10 | 12/31/11 | 7/19/12 | Week Earlier | Month Earlier | |
Office | 342 | 214 | 210 | 239 | 239 | 239 |
Retail | 326 | 207 | 207 | 232 | 230 | 234 |
Multifamily | 318 | 188 | 198 | 223 | 226 | 226 |
Industrial | 333 | 201 | 205 | 229 | 230 | 230 |
Average Spread | 330 | 203 | 205 | 231 | 230 | 232 |
10-Year Treasury | 3.83% | 3.29% | 1.88% | 1.49% | 1.49% | 1.87% |
The Cushman & Wakefield Equity, Debt, and Structured Finance Commercial Mortgage Spread monthly survey of commercial mortgage spreads showed spreads for 10-year, fixed rate mortgages, coming in 5 basis points, reinforcing our comments above regarding floor pricing by lenders.
Property Type | Mid-Point of Fixed Rate Commercial Mortgage | ||||
12/31/10 | 4/27/12 | 5/30/12 | 6/28/12 | 2/26/12 | |
Multifamily - Non-Agency | +270 | +240 | +250 | +245 | +245 |
Multifamily – Agency | +280 | +200 | +210 | +225 | +225 |
Regional Mall | +280 | +275 | +300 | +300 | +295 |
Grocery Anchored | +280 | +270 | +295 | +295 | +290 |
Strip and Power Centers |
| +295 | +320 | +320 | +315 |
Multi-Tenant Industrial | +270 | +285 | +305 | +305 | +300 |
CBD Office | +280 | +270 | +295 | +300 | +295 |
Suburban Office | +300 | +290 | +315 | +315 | +315 |
Full-Service Hotel | +320 | +340 | +360 | +360 | +360 |
Limited-Service Hotel | +400 | +350 | +370 | +370 | +370 |
5-Year Treasury | 2.60% | 0.83% | 0.69% | 0.69% | 0.57% |
Source: Cushman & Wakefield Equity, Debt, and Structured Finance. | |||||
Property Type | Mid-Point of Fixed Rate Commercial Mortgage | ||||
12/31/10 | 4/27/12 | 5/30/12 | 6/28/12 | 7/26/12 | |
Multifamily - Non-Agency | +190 | +210 | +220 | +220 | +220 |
Multifamily – Agency | +200 | +170 | +190 | +200 | +210 |
Regional Mall | +175 | +220 | +245 | +245 | +235 |
Grocery Anchor | +190 | +200 | +230 | +235 | +230 |
Strip and Power Centers |
| +235 | +260 | +255 | +250 |
Multi-Tenant Industrial | +190 | +240 | +260 | +260 | +255 |
CBD Office | +180 | +220 | +250 | +250 | +245 |
Suburban Office | +190 | +245 | +270 | +265 | +265 |
Full-Service Hotel | +290 | +260 | +295 | +290 | +290 |
Limited-Service Hotel | +330 | +290 | +320 | +310 | +310 |
10-Year Treasury | 3.47% | 1.95% | 1.62% | 1.58% | 1.42% |
Source: Cushman & Wakefield Equity, Debt, and Structured Finance. | |||||
Property Type | Mid-Point of Floating-Rate Commercial Mortgage | ||||
12/31/10 | 4/27/12 | 5/30/12 | 6/28/12 | 7/26/12 | |
Multifamily – Non-Agency | +250-300 | +200-250 | +200-250 | +200-260 | +200-260 |
Multifamily- Agency | +300 | +220-265 | +220-265 | +220-265 | +220-265 |
Regional Mall | +275-300 | +200-265 | +210-275 | +210-275 | +210-275 |
Grocery Anchored | +275-300 | +200-275 | +205-275 | +210-275 | +210-275 |
Strip and Power Centers |
| +225-300 | +225-300 | +225-300 | +225-300 |
Multi-Tenant Industrial | +250-350 | +225-305 | +235-305 | +235-305 | +230-305 |
CBD Office | +225-300 | +225-300 | +225-300 | +225-300 | +225-300 |
Suburban Office | +250-350 | +250-325 | +250-325 | +250-325 | +250-325 |
Full-Service Hotel | +300-450 | +250-400 | +275-400 | +275-400 | +275-400 |
Limited-Service Hotel | +450-600 | +325-450 | +325-450 | +325-450 | +325-450 |
1-Month LIBOR | 0.26% | 0.24% | 0.24% | 0.24% | 0.24% |
3-Month LIBOR | 0.30% | 0.47% | 0.47% | 0.47% | 0.46% |
* A dash (-) indicates a range. | |||||
Source: Cushman & Wakefield Equity, Debt, and Structured Finance. | |||||
Year-to-Date Public Equity Capital Markets
DJIA (1): +7.02%|
S & P 500 (2): +10.21%
NASDAQ (3): +13.55%
Russell 2000 (4):+7.43%
Morgan Stanley U.S. REIT (5):+14.63%
(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 | 12/31/11 | 7/2//12 | |
3-Month | 0.12% | 0.01% | 0.10% |
6-Month | 0.18% | 0.06% | 0.14% |
2 Year | 0.59% | 0.24% | 0.24% |
5 Year | 2.01% | 0.83% | 0.65% |
7 Year |
|
| 1.04% |
10 Year | 3.29% | 1.88% | 1.55% |
Key Rates (in Percentages) | |||||
| Current | 1 Mo. Prior | 3 Mo. Prior | 6 Mo. Prior | 1 Yr. Prior |
Fed Funds Rate | 0.16 | 0.10 | 0.16 | 0.10 | 0.11 |
Federal Reserve Target Rate | 0.25 | 0.25 | 0.25 | 0.25 | 0.25 |
Prime Rate | 3.25 | 3.25 | 3.25 | 3.25 | 3.25 |
US Unemployment Rate | 8.20 | 8.20 | 8.20 | 8.50 | 9.10 |
1-Month Libor | 0.25 | 0.24 | 0.24 | 0.27 | 0.19 |
3-Month Libor | 0.45 | 0.46 | 0.47 | 0.55 | 0.25 |
