Each quarter, the industry group Real Estate Roundtable conducts a quarterly survey, the results of which form the basis of the “Real Estate Roundtable Sentiment Index.” The survey collects and evaluates the views of industry senior executives including CEOs, company presidents, and other senior executives regarding current conditions and future prospects in regard to overall real estate conditions, access to capital markets, and real estate asset pricing. The first-quarter 2014 edition of the survey can be found in the February 21st issue of the Real Estate Roundtable Weekly .
The survey leans heavily on quotes from survey participants. Significant findings include the following:
- The index increased two points versus the prior quarter, with participant sentiment reflecting a steadily—albeit slowly—improving economy.
- Dysfunction in Washington remains a primary concern.
- While real estate market fundamentals continue to improve, the likelihood of increasing interest rates—even if deferred by the Federal Reserve until 2015—remains a key concern.
- Transaction volume and capital flows continue to increase—especially in the secondary markets, as the core markets are “just too pricey.”
- Property engineering continues to replace financial engineering as the means by which value will be created; increasing cash flows rather than capitalization rate compression will drive property valuation.
- Significant equity and debt capital is available from a wide array of domestic sources as well as from an increasing number of offshore sources.
Monday’s Numbers
The Trepp survey for the period ending February 14, 2014, showed spreads basically unchanged, with pricing at 150 basis points common for core property in gateway markets with strong ownership. Absent some unexpected event in the economic or capital markets, rates should remain within a narrow range.
Asking Spreads over U.S. Ten-Year Treasury Bonds in Basis Points | |||||||
12/31/09 | 12/31/10 | 12/31/11 | 12/31/12 | 12/31/13 | 2/14/14 | Month earlier | |
| Office | 342 | 214 | 210 | 210 | 162 | 150 | 155 |
| Retail | 326 | 207 | 207 | 192 | 160 | 148 | 149 |
| Multifamily | 318 | 188 | 202 | 182 | 157 | 141 | 143 |
| Industrial | 333 | 201 | 205 | 191 | 159 | 145 | 148 |
| Average spread | 330 | 203 | 205 | 194 | 160 | 146 | 149 |
| 10-year Treasury | 3.83% | 3.29% | 0.88% | 1.64% | 3.04% | 2.73% | 2.88% |
The most recent Cushman & Wakefield Equity, Debt, and Structured Finance Group’s monthly survey of commercial real estate mortgage spreads, dated February 11, 2014, showed spreads unchanged (anchored and strip centers, industrial sectors, and office) to 5 basis points wider (everyone else).
Ten-Year Fixed-Rate Commercial Real Estate Mortgages (as of January 8, 2014) | |||
Property | Maximum loan-to-value | Class A | Class B |
| Multifamily (agency) | 75–80% | T +180 | T +185 |
| Multifamily (nonagency) | 70–75% | T +185 | T +195 |
| Anchored retail | 70–75% | T +205 | T +220 |
| Strip center | 65–70% | T +220 | T +235 |
| Distribution/warehouse | 65–70% | T +195 | T +210 |
| R&D/flex/industrial | 65–70% | T +210 | T +230 |
| Office | 65–75% | T +195 | T +215 |
| Full-service hotel | 55–65% | T +255 | T +280 |
| Debt-service-coverage ratio assumed to be greater than 1.35 to 1. | |||
Year-to-Date Public Equity Capital Markets
Dow Jones Industrial Average: –2.86%
Standard & Poor’s 500 Stock Index: –0.66%
NASD Composite Index (NASDAQ): +2.08%
Russell 2000: +0.09%
Morgan Stanley U.S. REIT Index: +4.84%
Year-to-Date Global CMBS Issuance (in $ billions as of 2/21/14) | ||
2014 | 2013 | |
| U.S. | 10.0 | 13.5 |
| Non-U.S. | 0.0 | 1.0 |
| Total | 10.0 | 14.5 |
| Source: Commercial Mortgage Alert | ||
U.S. Treasury Yields | |||
12/31/12 | 12/31/13 | 2/21/14 | |
| 3-month | 0.08% | 0.07% | 0.04% |
| 6-month | 0.12% | 0.10% | 0.08% |
| 2-year | 0.27% | 0.38% | 0.32% |
| 5-year | 0.76% | 1.75% | 1.59% |
| 7-year | 1.25% | 2.45% | 2.19% |
| 10-year | 1.86% | 3.04% | 2.73% |
