Credit Rating Agencies Shrug Off Sequester, Say More Cuts Needed
Both Fitch and Moody’s Investors Service still give the U.S. their top rating, but both have placed it on a negative outlook, effectively warning that Washington will need to address the nation’s long-term debt issues in 2013 or face a downgrade. While some think the financial world’s reaction to a decrease in the U.S. credit rating would be the same as when Standard & Poor’s cut their rating last year—a flight to safety and liquidity, i.e., a flight to U.S. Treasury securities—others argue that the financial markets could easily decide to penalize the U.S. simply by reducing their investment in U.S. government securities. This could in turn lead to higher interests and a slower U.S. economy.
On a more positive note
- The U.S. added 236,000 jobs in February compared to economist’s predicted 160,000 as the jobless rate declined to 7.70 percent, its lowest level since the end of 2008.
- The Federal Reserve’s Beige Book economic survey for the mid-January to end of February period showed overall economic activity expanding across all districts. Credit for commercial real estate was reported as “widely available”.
- The Federal Reserve reported that 17 of 18 of the U.S.’ largest banks passed the agency’s “stress test,” showing they have sufficient capital to operate in the event of a hypothetical sharp economic downturn.
- The percentage of commercial mortgage-backed securities loan balances in Fitch-rated transactions that are delinquent at least 60 days or are in foreclosure declined from 7.91 percent in January 2013 to 7.61 percent in February. The rate stood at 8.30 percent one year earlier.
Monday’s Numbers
The Trepp survey for the most recent period showed spreads unchanged for all property sectors as all-in cost for 10-year paper with low loan-to-value ratios remains sub-four percent. Absent the appearance of any uncertainty, the market has seemed to have settled into a risk/reward range it is comfortable with.
Asking Spreads over U.S. Treasury Bonds in Basis Points | ||||||
12/31/09 | 12/31/10 | 12/31/11 | 12/31/12 | 3/1/13 | Month Earlier | |
Office | 342 | 214 | 210 | 210 | 180 | 183 |
Retail | 326 | 207 | 207 | 192 | 174 | 176 |
Multifamily | 318 | 188 | 202 | 182 | 165 | 164 |
Industrial | 333 | 201 | 205 | 191 | 165 | 172 |
Average Spread | 330 | 203 | 205 | 194 | 171 | 174 |
Ten-Year Treasury | 3.83% | 3.29% | 1.88% | 1.64% | 1.86% | 2.04% |
Property Type | Mid-Point 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 – Non-Agency | +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 |
Five-Year Treasury | 2.60% | 0.89% | 0.76% | 0.86% |
Source: Cushman & Wakefield Equity, Debt, and Structured Finance. | ||||
Property Type | Mid-Point of Fixed Rate Commercial Mortgage | |||
12/31/10 | 12/31/11 | 12/31/12 | 1/31/13 | |
Multifamily – Non-Agency | +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 | Mid-Point of Floating-Rate Commercial Mortgage Spreads For Three to Five-Year Commercial Real Estate Year Mortgages | |||
12/31/10 | 12/31/11 | 12/31/12 | 1/31/13 | |
Multifamily – Non-Agency | +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 |
Multi-Tenant 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): +9.87%
S&P 500 (2): +8.76%
NASDAQ (3): +7.45%
Russell 2000 (4)10.97%
Morgan Stanley U.S. REIT (5):+5.86%
(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 | 3/9/13 | |
3-Month | 0.01% | 0.08% | 0.10% |
6-Month | 0.06% | 0.12% | 0.11% |
2 Year | 0.24% | 0.27% | 0.27% |
5 Year | 0.83% | 0.76% | 0.9% |
7 Year |
| 1.25% | 1.43% |
10 Year | 1.88% | 1.86% | 2.06% |
Key Rates (in Percentages) | ||
| Current | 1 Yr. Prior |
Federal Funds Rate | 0.16 | 0.13 |
Federal Reserve Target Rate | 0.25 | 0.25 |
Prime Rate | 3.25 | 3.25 |
US Unemployment Rate | 7.70 | 8.70 |
1-Month LIBOR | 0.20 | 0.24 |
3-Month LIBOR | 0.28 | 0.47 |
