Monday’s Numbers: August 4, 2014

The Trepp survey for the week ending July 25 showed average spreads declining 2 basis points on what seems to be their inexorable path to zero.

August 4, 2014

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The Trepp survey for the week ending July 25 showed average spreads declining 2 basis points on what seems to be their inexorable path to zero. The implied rate for ten-year, modestly leveraged commercial real estate mortgages declined to 3.8 percent, 84 basis points below its level on December 31, 2013. The search for yield continues unabated, putting incredible pressure on lenders to compete for business.

Asking Spreads over Ten-Year U.S. Treasury Bonds in Basis Points (Ten-year commercial and multifamily mortgage loans for properties with 50 to 59 percent loan-to-value ratios)
	12/31/10	12/31/11	12/31/12	12/31/13	This week (7/25/14)	Last week (7/18/14)	Month earlier
Office	214	210	210	162	140	140	139
Retail	207	207	192	160	131	133	129
Multifamily	188	202	182	157	127	130	123
Industrial	201	205	191	159	129	132	126
Average spread	203	205	194	160	132	134	1.29
10-year Treasury	3.29%	2.88%	1.64%	3.04%	2.48%	2.50%	2.57%

The Cushman & Wakefield Equity, Debt, and Structured Finance Group’s monthly Capital Markets Update of commercial real estate mortgage spreads, dated July 10, 2014, showed spreads coming in approximately 5 basis points since the prior survey (dated June 5) as lenders continue to compete for business; implied all-in cost ranges from 4.25 to 4.50 percent.

Ten-Year Fixed-Rate Commercial Real Estate Mortgages (as of July 10, 2014)
Property	Maximumloan-to-value	Class A	Class B
Multifamily (agency)	75–80%	T +170	T +170
Multifamily (nonagency)	70–75%	T +165	T +180
Anchored retail	70–75%	T +185	T +195
Strip center	65–70%	T +190	T +200
Distribution/warehouse	65–70%	T +180	T +200
R&D/flex/industrial	65–70%	T +190	T +210
Office	65–75%	T +185	T +195
Full-service hotel	55–65%	T +240	T +260
Debt-service-coverage ratio assumed to be greater than 1.35 to 1.

Year-to-Date Public Equity Capital Markets

Dow Jones Industrial Average: –0.50 percent

Standard & Poor’s 500 Stock Index: +4.15 percent

NASD Composite Index (NASDAQ): +4.22 percent

Russell 2000: –4.19 percent

Morgan Stanley U.S. REIT Index: +12.02 percent

Year-to-Date Global CMBS Issuance (in $ billions as of 7/25/14)
	2014	2013
U.S.	$49.1	$52.5
Non-U.S.	1.9	7.8
Total	$51.1	$60.3
Source: Commercial Mortgage Alert.

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

U.S. Treasury Yields
	12/31/12	12/31/13	8/1/14
3-month	0.08%	0.07%	0.03%
6-month	0.12%	0.10%	0.05%
2-year	0.27%	0.38%	0.47%
5-year	0.76%	1.75%	1.67%
7-year	1.25%	2.45%	2.16%
10-year	1.86%	3.04%	2.52%

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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.