According to Jones Lang LaSalle’s recently published “City Momentum Index,” San Francisco is currently the world’s most dynamic city. The index, which studies short-term socioeconomic and commercial real estate momentum and longer-term foundations for success, noted five other U.S. cities (New York City; Austin, Texas; San Jose, California; Los Angeles; and Seattle) in the global top 20.
Emerging Trends in Real Estate 2014, published in November 2013, is in agreement; the only exception is Los Angeles, which ranked 13 among the Emerging Trends top U.S. investment markets.
While one cannot really compare the surveys—as Emerging Trends focuses on perceptions regarding prospects for investment and development by participants in the real estate, whereas the Jones Lang LaSalle analysis seeks to empirically measure an array of factors such as infrastructure, connectivity, and innovation—there are many foundation commonalities worth noting.
For example, both surveys note similar factors that led to high overall rankings, including: the presence of one or more of the following industries (high tech, energy, medical, and financial services); highly ranked colleges and universities; in-migration of young workers who see numerous opportunities for current employment and long-term careers; strong housing markets offering many alternative configurations; an attractive business environment fostered by active local government; and liquidity for investors.
Monday’s Numbers
The Trepp survey for the period ending January 24, 2014, showed spreads continuing to narrow over the past month by +/–20 basis points, as pricing in the mortgage market remains highly competitive.
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 | 1/24/14 | Month earlier | |
| Office | 342 | 214 | 210 | 210 | 162 | 155 | 175 |
| Retail | 326 | 207 | 207 | 192 | 160 | 151 | 175 |
| Multifamily | 318 | 188 | 202 | 182 | 157 | 146 | 167 |
| Industrial | 333 | 201 | 205 | 191 | 159 | 150 | 170 |
| Average spread | 330 | 203 | 205 | 194 | 160 | 151 | 172 |
| 10-year Treasury | 3.83% | 3.29% | 0.88% | 1.64% | 3.04% | 2.75% | 2.84% |
The most recent Cushman & Wakefield Equity, Debt, and Structured Finance Group’s monthly survey of commercial real estate mortgage spreads, dated January 8, 2014, showed spreads coming in +/–5 basis points during the survey period.
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 +195 | T +200 |
| Multifamily (nonagency) | 70–75% | T +195 | T +205 |
| Anchored retail | 70–75% | T +205 | T +210 |
| Strip center | 65–70% | T +220 | T +230 |
| Distribution/warehouse | 65–70% | T +195 | T +210 |
| R&D/flex/industrial | 65–70% | T +210 | T +225 |
| Office | 65–75% | T +195 | T +210 |
| Full-service hotel | 55–65% | T +250 | T +275 |
| Debt-service-coverage ratio assumed to be greater than 1.35 to 1. | |||
Year-to-Date Public Equity Capital Markets
Dow Jones Industrial Average: –5.30%
Standard & Poor’s 500 Stock Index: –3.56%
NASD Composite Index (NASDAQ): –1.74%
Russell 2000: –2.82%
Morgan Stanley U.S. REIT Index: +3.64%
Year-to-Date Global CMBS Issuance | ||
2014 | 2013 | |
| U.S. | $6.4 | $8.8 |
| Non-U.S. | $0.0 | $0.0 |
| Total | $6.4 | $8.8 |
| Source: Commercial Mortgage Alert | ||
U.S. Treasury Yields | |||
12/31/12 | 12/31/13 | 1/31/14 | |
| 3-month | 0.08% | 0.07% | 0.02% |
| 6-month | 0.12% | 0.10% | 0.06% |
| 2-year | 0.27% | 0.38% | 0.34% |
| 5-year | 0.76% | 1.75% | 1.49% |
| 7-year | 1.25% | 2.45% | 2.13% |
| 10-year | 1.86% | 3.04% | 2.67% |
