The Trepp survey for the week ending July 11, 2014, showed spreads widening about two basis points as the financial markets tried to process the twin geopolitical upheavals that grabbed everyone’s attention last week. It’s not easy trying to run a financial business when you have to worry about capital fleeing the markets in search of safety and liquidity (i.e., U.S. Treasury securities). The implied rate for ten-year, modestly leveraged commercial real estate mortgages remains at or slightly below 4.0 percent.
Asking Spreads over U.S. Ten-Year Treasury Bonds in Basis Points | |||||||
| 12/31/10 | 12/31/11 | 12/31/12 | 12/31/13 | This week (7/11/14) | Last week (7/4/14) | Month earlier | |
| Office | 214 | 210 | 210 | 162 | 144 | 141 | 149 |
| Retail | 207 | 207 | 192 | 160 | 137 | 135 | 141 |
| Multifamily | 188 | 202 | 182 | 157 | 132 | 130 | 134 |
| Industrial | 201 | 205 | 191 | 159 | 135 | 132 | 136 |
| Averagespread | 203 | 205 | 194 | 160 | 137 | 135 | 140 |
| 10-yearTreasury | 3.29% | 2.88% | 1.64% | 3.04% | 2.53% | 2.65% | 2.65% |
The Cushman & Wakefield Equity, Debt, and Structured Finance Group’s monthly Capital Markets Update of commercial real estate mortgage spreads, dated July 10, 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.
In its “Market Commentary,” C&W noted that issuance of commercial mortgage–backed securities (CMBS) had declined 8 percent during the first half of 2014 but was expected to increase during the second half of the year as there is almost $20 billion of deals in the pipeline.
Ten-Year Fixed-Rate Commercial Real Estate Mortgages (as of July 10, 2014) | |||
| Property | Maximum loan-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: +3.16 percent
Standard & Poor’s 500 Stock Index: +7.03 percent
NASD Composite Index (NASDAQ): +6.12 percent
Russell 2000: –1.03 percent
Morgan Stanley U.S. REIT Index: +14.97 percent
Year-to-Date Global CMBS Issuance (in $ billions as of 7/18/14) | ||
| 2014 | 2013 | |
| U.S. | $44.1 | $49.0 |
| Non-U.S. | 1.2 | 7.4 |
| Total | $45.3 | $53.7 |
| Source: Commercial Mortgage Alert. | ||
Year-to-Date Public U.S. Treasury Yields
U.S. Treasury Yields | |||
| 12/31/12 | 12/31/13 | 7/19/14 | |
| 3-month | 0.08% | 0.07% | 0.02% |
| 6-month | 0.12% | 0.10% | 0.05% |
| 2-year | 0.27% | 0.38% | 0.51% |
| 5-year | 0.76% | 1.75% | 1.69% |
| 7-year | 1.25% | 2.45% | 2.14% |
| 10-year | 1.86% | 3.04% | 2.50% |
