Monday’s Numbers: August 18, 2014

The Trepp survey for the week ending August 8, 2014, showed average spreads continuing to widen. The implied rate for ten-year, modestly leveraged commercial real estate mortgages increased to 3.85 percent, down 79 basis points this year.

August 18, 2014

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The Trepp survey for the week ending August 8, 2014, showed average spreads continuing to widen. We suspect much of last week’s activity was a result of “pushback” by institutional investors reacting to tight initial offering prices of deals coming to market combined with a feeling that underwriting standards have deteriorated during the past few weeks. The implied rate for ten-year, modestly leveraged commercial real estate mortgages increased to 3.85 percent, down 79 basis points this year.

Asking Spreads over U.S. Ten-Year Treasury Bonds in Basis Points (Ten-year commercial and multifamily mortgage loans for properties with 50 percent to 59 percent loan-to-value ratios)
	12/31/10	12/31/11	12/31/12	12/31/13	This week (8/8/14)	Last week (8/1/14)	Month earlier
Office	214	210	210	162	148	141	144
Retail	207	207	192	160	140	134	137
Multifamily	188	202	182	157	138	132	132
Industrial	201	205	191	159	138	132	134
Average spread	203	205	194	160	141	135	137
10-yr Treasury	3.29%	2.88%	1.64%	3.04%	2.44%	2.48%	2.58%

The Cushman & Wakefield Equity, Debt, and Structured Finance Group’s monthly Capital Markets Update of commercial real estate mortgage spreads, dated August 7, showed spreads coming in approximately 5 basis points as compared with the prior survey (dated June 10) as lenders continue to compete for business; implied all-in cost ranges from 4.25 percent to 4.50 percent.

Ten-Year Fixed-Rate Commercial Real Estate Mortgages (as of August 7, 2014)
Property	Maximum loan-to-value	Class A	Class B/C
Multifamily (agency)	75–80%	T +160	T +170
Multifamily (nonagency)	70–75%	T +155	T +160
Anchored retail	70–75%	T +175	T +185
Strip center	65–70%	T +175	T +185
Distribution/warehouse	65–70%	T +175	T +185
R&D/flex/industrial	65–70%	T +185	T +190
Office	65–75%	T +175	T +185
Full-service hotel	55–65%	T +235	T +255
Debt-service-coverage ratio assumed to be greater than 1.35 to 1.

Year-to-Date Public Equity Capital Markets

Dow Jones Industrial Average: +0.52 percent

Standard & Poor’s 500 Stock Index: +5.77 percent

NASD Composite Index (NASDAQ): +6.90 percent

Russell 2000: –1.89 percent

Morgan Stanley U.S. REIT Index: +14.1 percent

Year-to-Date Global CMBS Issuance (in $ billions as of 8/15/14)
	2014	2013
U.S.	$54.9	$56.4
Non-U.S.	1.9	7.8
Total	$56.8	$64.2
Source: Commercial Mortgage Alert

Year-to-Date Public U.S. Treasury Yields

U.S. Treasury Yields
	12/31/12	12/31/13	8/14/14
3-month	0.08%	0.07%	0.03%
6-month	0.12%	0.10%	0.06%
2-year	0.27%	0.38%	0.42%
5-year	0.76%	1.75%	1.57%
7-year	1.25%	2.45%	2.34%
10-year	1.86%	3.04%	2.40%

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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.