There certainly were no May flowers in the REIT garden in May with the NAREIT Equity Index posting a -4.41 percent total return. The best turned out to be healthcare REITs (-0.95 percent) and apartments (-2.36 percent).
The worst performers were industrial (-8.64 percent) and hotels (-7.73 percent). Year-to-date the Equity REIT Index is up 8.44 percent including a dividend yield equal to 3.45 percent.
Monday’s Numbers
The Trepp LLC survey showed spreads widening 10 to 15 basis points during the survey period as the markets languish, waiting for clarity. A week ago, it was who would win the Greek election; now that the austerity party has won, the markets are holding their collective breaths waiting to see what will actually happen.
The Federal Reserve Board met last week, extending Operation Twist through 2012.
Moody’s downgraded the credit rating of 15 U.S. commercial banks; while not unexpected, it certainly was disconcerting.
While pricing remains subject to floors from both conventional and securitized lenders with all-in costs said to be 3.5 percent (+/-) for five year funds and 4.0 percent (+/-) for 10-year financing, some lenders have been heard to express concern that rates are “just too low” to compensate for the risks of lending to the commercial real estate community. So far, no one has left the table (and we do not expect many, if any, will). Lest we forget, lenders have rate of return “bogeys” for both shareholders as well as beneficiaries as well as required returns associated with running matched books.
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 | 6/15/12 | Month Earlier | |
Office | 342 | 214 | 210 | 239 | 223 |
Retail | 326 | 207 | 207 | 234 | 216 |
Multifamily | 318 | 188 | 198 | 226 | 209 |
Industrial | 333 | 201 | 205 | 230 | 213 |
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Average Spread | 330 | 203 | 205 | 232 | 210 |
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10-Year Treasury | 3.83% | 3.29% | 1.88% | 1.59% | 1.95% |
The Cushman & Wakefield Equity, Debt, and Structured Finance Commercial Mortgage Spread survey showed spreads for 10-year fixed rate mortgages widening 20 to 25 basis points during the survey period.
Property Type | Mid-Point of Fixed Rate Commercial Mortgage Spreads For 5 Year Commercial Real Estate Mortgages | ||||
12/31/10 | 2/28/12 | 3/28/12 | 4/27/12 | 5/30/12 | |
Multifamily - Non-Agency | +270 | +240 | +230 | +240 | +250 |
Multifamily – Agency | +280 | +210 | +195 | +200 | +210 |
Regional Mall | +280 | +300 | +275 | +275 | +300 |
Grocery Anchored | +280 | +290 | +270 | +270 | +295 |
Strip and Power Centers |
| +315 | +295 | +295 | +320 |
Multi-Tenant Industrial | +270 | +310 | +310 | +285 | +305 |
CBD Office | +280 | +310 | +295 | +270 | +295 |
Suburban Office | +300 | +320 | +310 | +290 | +315 |
Full-Service Hotel | +320 | +350 | +350 | +340 | +360 |
Limited-Service Hotel | +400 | +360 | +360 | +350 | +370 |
5-Year Treasury | 2.60% | 0.78% | 0.83% | 0.83% | 0.69% |
Source: Cushman & Wakefield Sonnenblick Goldman. | |||||
Property Type | Mid-Point of Fixed Rate Commercial Mortgage Spreads For 10 Year Commercial Real Estate Mortgages | ||||
12/31/10 | 2/28/12 | 3/28/12 | 4/27/12 | 5/30/12 | |
Multifamily - Non-Agency | +190 | +210 | +200 | +210 | +220 |
Multifamily – Agency | +200 | +180 | +165 | +170 | +190 |
Regional Mall | +175 | +235 | +275 | +220 | +245 |
Grocery Anchor | +190 | +230 | +270 | +200 | +230 |
Strip and Power Centers |
| +250 | +290 | +235 | +260 |
Multi-Tenant Industrial | +190 | +250 | +280 | +240 | +260 |
CBD Office | +180 | +320 | +270 | +220 | +250 |
Suburban Office | +190 | +250 | +290 | +245 | +270 |
Full-Service Hotel | +290 | +290 | +325 | +260 | +295 |
Limited-Service Hotel | +330 | +315 | +345 | +290 | +320 |
10-Year Treasury | 3.47% | 1.90% | 2.21% | 1.95% | 1.62% |
Source: Cushman & Wakefield Sonnenblick Goldman. | |||||
Property Type | Mid-Point of Floating-Rate Commercial Mortgage Spreads For 3 - 5 Commercial Real Estate Year Mortgages | ||||
12/31/10 | 2/28/12 | 3/28/12 | 4/27/12 | 5/30/12 | |
Multifamily – Non-Agency | +250-300 | +200-250 | +200-250 | +200-250 | +200-250 |
Multifamily- Agency | +300 | +220-265 | +220-265 | +220-265 | +220-265 |
Regional Mall | +275-300 | +200-265 | +200-265 | +200-265 | +210-275 |
Grocery Anchored | +275-300 | +200-275 | +200-275 | +200-275 | +205-275 |
Strip and Power Centers |
| +225-300 | +225-300 | +225-300 | +225-300 |
Multi-Tenant Industrial | +250-350 | +225-305 | +225-305 | +225-305 | +235-305 |
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 | +275-400 | +275-400 | +250-400 | +275-400 |
Limited-Service Hotel | +450-600 | +350-550 | +325-450 | +325-450 | +325-450 |
1-Month LIBOR | 0.26% | 0.24% | 0.24% | 0.24% | 0.24% |
3-Month LIBOR | 0.30% | 0.49% | 0.47% | 0.47% | 0.47% |
* A dash (-) indicates a range. | |||||
Source: Cushman & Wakefield Sonnenblick Goldman. | |||||
Year-to-Date Public Equity Capital Markets
DJIA (1): +3.46%
S & P 500 (2): +6.16
NASDAQ (3): +11.03%
Russell 2000 (4):4.62%
Morgan Stanley U.S. REIT (5):+8.65%
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(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 | 6/22/12 | |
3-Month | 0.12% | 0.01% | 0.08% |
6-Month | 0.18% | 0.06% | 0.14% |
2 Year | 0.59% | 0.24% | 0.30% |
5 Year | 2.01% | 0.83% | 0.75% |
7 Year |
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| 1.14% |
10 Year | 3.29% | 1.88% | 1.67% |
Key Rates (in Percentages) | |||||
| Current | 1 Mo. Prior | 3 Mo. Prior | 6 Mo. Prior | 1 Yr. Prior |
Fed Funds Rate | 0.18 | 0.17 | 0.15 | 0.07 | 0.10 |
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 | 8.10 | 8.30 | 8.70 | 9.00 |
1-Month Libor | 0.25 | 0.24 | 0.24 | 0.29 | 0.19 |
3-Month Libor | 0.46 | 0.47 | 0.47 | 0.57 | 0.25 |
