Monday’s Numbers: November 12, 2012

According to its most recent survey, Trepp reported spreads were unchanged week-over-week, likely defining pricing for the balance of the year for the most creditworthy borrowers seeking to mortgage core properties located in gateway markets.

November 12, 2012

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One Uncertainty Down, Many Remain

Now that the U.S. presidential election is behind us, we turn our attention to the upcoming fiscal cliff, the continuing austerity crises in Europe, regime change in China, the prospects for additional civil conflict in the Middle East, etc.

This is not the forum for dealing with these complex issues; what we are trying to do is remind you that it is time to take a deep breath, marshal your resources, and get on with it. Tempus fugit: you have deals to close before yearend.

REITs Did Not Shine in October

According to the FTSE NAREIT Equity REIT Index, equity REITs posted a total return of -0.84 percent for October 2012; in September, the equity REIT index posted a total return of -1.78 percent.

The best performing REIT sectors in October were infrastructure (+5.47 percent) and timber (+3.08 percent); the poorest performing REIT sectors were hotels (-8.13 percent) and diversified (-1.65 percent).

Capitalization Rate Survey Results

According to the Real Estate Research Corporation’s most recent survey of institutional investors and advisors, capitalization rates continued to decrease, subject to two exceptions, reflecting the continuing high demand for income-producing real estate investments.

The two exceptions were regional malls where capitalization rates were reported to have widened 40 basis points (which seems an extreme move) and lodging which widened 30 basis points which while extreme as to amount is reasonable given the volatile nature of the lodging industry. We have a call in to RERC and will report back.

Property Sector	2Q 2012	3Q 2012	Increase (Decrease)

Multifamily	5.60%	5.40%	(0.20%)
Office-CBD	6.20%	6.20%	---
Office-Suburban	7.20%	7.20%	---
Retail-Mall	6.40%	6.80%	+0.40%
Retail-Neighborhood	7.00%	6.70%	(0.30%)
Retail-Power	7.30%	7.20%	(0.10%)
Industrial-Warehouse	6.70%	6.50%	(0.20%)
Industrial-R & D	7.50%	7.40%	(0.10%)
Industrial-Flex	7.90%	7.80%	(0.10%)
Lodging	8.00%	8.30%	+0.30%

All Property	6.96%	6.95%	(0.01%)

Monday’s Numbers

According to its most recent survey, Trepp reported spreads were unchanged week-over-week, which likely defines pricing for the balance of the year for the most creditworthy borrowers seeking to mortgage core properties located in gateway markets; if that’s not you and your property, add a 50 to 100 basis point premium (depending on loan term), sign the application, and close the deal. Rates will likely not get any lower.

All-in-all, mortgage rates remain incredibly attractive and seem likely to stay at this level until this year’s allocation is completely exhausted (or the loan officers become completely exhausted).

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	11/2	Week Earlier	Month Earlier
Office	342	214	210	220	221	225
Retail	326	207	207	207	205	206
Multifamily	318	188	202	198	198	208
Industrial	333	201	205	206	206	217

Average Spread	330	203	205	208	208	214

10-Year Treasury	3.83%	3.29%	1.88%	1.70%	1.69%	1.62%

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 approximately 15 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	7/26/12	9/3/12	9/27/12	11/6/12
Multifamily - Non-Agency	+270	+245	+240	+235	+220
Multifamily – Agency	+280	+225	+225	+210	+210
Regional Mall	+280	+295	+290	+285	+270
Grocery Anchored	+280	+290	+285	+280	+265
Strip and Power Centers		+315	+310	+305	+295
Multi-Tenant Industrial	+270	+300	+295	+290	+270
CBD Office	+280	+295	+285	+280	+250
Suburban Office	+300	+315	+305	+300	+270
Full-Service Hotel	+320	+360	+360	+355	+340
Limited-Service Hotel	+400	+370	+370	+365	+350
5-Year Treasury	2.60%	0.57%	0.68%	0.64%	0.71%
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	7/26/12	9/3/12	9/27/12	11/6/12
Multifamily - Non-Agency	+190	+220	+210	+205	+190
Multifamily – Agency	+200	+210	+210	+195	+180
Regional Mall	+175	+235	+230	+225	+210
Grocery Anchor	+190	+230	+225	+220	+205
Strip and Power Centers		+250	+245	+240	+225
Multi-Tenant Industrial	+190	+255	+250	+245	+225
CBD Office	+180	+245	+235	+230	+200
Suburban Office	+190	+265	+260	+255	+225
Full-Service Hotel	+290	+290	+290	+285	+270
Limited-Service Hotel	+330	+310	+310	+305	+390
10-Year Treasury	3.47%	1.42%	1.64%	1.64%	1.71%
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	7/26/12	9/3/12	9/27/12	11/6/12
Multifamily – Non-Agency	+250-300	+200-260	+200-260	+200-260	+180-250
Multifamily- Agency	+300	+220-265	+220-265	+220-265	+200-260
Regional Mall	+275-300	+210-275	+210-275	+210-275	+210-275
Grocery Anchored	+275-300	+210-275	+210-275	+210-275	+210-275
Strip and Power Centers		+225-300	+225-300	+225-300	+225-300
Multi-Tenant Industrial	+250-350	+230-305	+230-305	+230-305	+230-305
CBD Office	+225-300	+225-300	+225-300	+225-300	+180-250
Suburban Office	+250-350	+250-325	+250-325	+250-325	+250-325
Full-Service Hotel	+300-450	+275-400	+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%	0.21%
3-Month LIBOR	0.30%	0.46%	0.43%	0.43%	0.31%
* A dash (-) indicates a range.
Source: Cushman & Wakefield Equity, Debt, and Structured Finance.

Year-to-Date Public Equity Capital Markets

DJIA ⁽¹⁾: +4.89%
S&P 500^(2):+9.72%
NASDAQ⁽³⁾: +11.50%
Russell 2000 ⁽⁴⁾:+7.31%
Morgan Stanley U.S. REIT ⁽⁵⁾:+9.39%

^{(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	11/10/12
3-Month	0.12%	0.01%	0.09%
6-Month	0.18%	0.06%	0.14%
2 Year	0.59%	0.24%	0.26%
5 Year	2.01%	0.83%	0.64%
7 Year			1.03%
10 Year	3.29%	1.88%	1.61%

Key Rates (in Percentages)
	Current	1 Mo. Prior	3 Mo. Prior	6 Mo. Prior	1 Yr. Prior
Fed Funds Rate	0.17	0.17	0.06	0.15	0.08
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	7.90	7.80	8.30	8.10	8.90
1-Month Libor	0.21	0.21	0.24	0.24	0.25
3-Month Libor	0.31	0.25	0.44	0.47	0.43

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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.