Monday’s Numbers: October 22, 2012

• Commercial real estate fundamentals are starting to improve (or at least stabilize) in most markets.
• Economic recovery? The U.S. is grinding it out.
• Vacancy rates for all property sectors are beginning to decline…slowly; lack of development for the past five years (x-multifamily) has helped; can you imagine what it would be like if we had overbuilt as in prior periods?
• Single-family market has reached the corner; maybe even turned it; it’s a market-by-market thing.
• Commercial real estate remains an attractive investment on a relative value basis; “we’re the cleanest dirty shirt in the closet.”
• We are somewhere between uncertainty and extreme uncertainty.
• China’s economic growth is slowing; European economies and capital markets remain in turmoil; the U.S. is facing the fiscal cliff; how do you plan in such an uncertain environment?
• Acquisitions in the core, gateway, 24-hour cities are “priced to perfection” for the seller; for the buyer, they may turn out to have been “priced to disappoint.”
• Chasing yield is the new Olympic sport.
• Increasing attention is being focused on secondary and tertiary markets as the core markets are “just too competitive and way too pricey.”
• While transaction activity is increasing, there are no bargains out there.
• It’s a seller’s market; it’s a holder’s market too.
• Interest rates will eventually increase, but I trust the Fed and think we’re safe through 2015.
• Industry will continue to shrink in size, reflecting less in terms of sales, leases, and financing and little, if any, new construction (excluding-multifamily); a smaller industry should be more profitable for those who survive.
• Sources of equity capital include the usual suspects: foreign investors; pension funds; opportunity funds; local sharpshooters; public REITs and private REITs—each of whom is expected to increase its allocation to real estate compared to 2012.
• Capitalization rates will continue to decline in all markets as investors chase yield; the trick is knowing when they have declined dangerously.
• Sea changes abound: reurbanization; e-commerce’s growth; Gen Y, and technology are game changers; distribution links and channels are re-thought.
• Availability of debt capital is expected to be greater in 2013 than in 2012; lenders will continue to play extend and pretend until regulators say otherwise.
• Should I be a buyer at low capitalization rates or a seller at low capitalization rates with no place to re-invest the proceeds?
• Refinancing (in general) is a continuing concern; refinancing of maturing CMBS loans is a financial hazard.
• Everybody says equity and debt underwriting standards will be stringent; I say, let them prove it.
• CMBS need to get their house in order before investors lose confidence again.
• REITs have put their house in order and have plenty of dry powder to fund acquisitions and development.
• Foreign investors and pension funds will remain active in U.S. real estate in 2013; we’re a global safe haven and a cash flow generator.

Monday’s Numbers

The Trepp, LLC survey showed commercial mortgage spreads coming unchanged during the survey period. And as we said previously: Drop whatever you are doing and refinance something; how can it get any better than this?

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 a uniform 5 basis points across all property sectors and terms over the past 30 days.

Year-to-Date Public Equity Capital Markets

DJIA ⁽¹⁾: +9.22%
S & P 500 ^(2): +13.96%
NASDAQ ⁽³⁾: +15.37%
Russell 2000 ⁽⁴⁾:+10.82%
Morgan Stanley U.S. REIT ⁽⁵⁾:+12.82%

^{(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.}