Monday’s Numbers: July 7, 2014

This may come as a surprise, but the largest private equity investor over the past five years is the Canadian Pension Plan Investment Board (CPPIB). According to a study conducted by Private Equity International, CPPIB has allocated 18 percent—or $26.2 billion—of its investable funds to private equity since 2009.

July 7, 2014

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This may come as a surprise, but the largest private equity investor over the past five years is the Canadian Pension Plan Investment Board (CPPIB). According to a study conducted by Private Equity International, CPPIB has allocated 18 percent—or $26.2 billion—of its investable funds to private equity since 2009. In second place is AlpInvest, with $19.5 billion in investment is private equity investments.

In third place is Hamilton Lane, with $14.6 billion allocated to private equity investments, followed by HarbourVest Partners (fourth), Washington State Investment Board (fifth), Caisse de dépôt et placement du Québec (sixth), the California Public Employees Retirement System (seventh), Pathway Capital Management (eighth), the Teachers Retirement System of Texas (ninth), and the Oregon Public Employees Retirement System (tenth).

Norway’s Sovereign Wealth Fund Widens Its Net

Everyone recognizes that sovereign wealth funds are an important source of investment funds, providing a backstop to property prices in many gateway markets due to their desire to invest large amounts of capital in cities such as New York and San Francisco. Norges Bank Investment Management, an $890 billion sovereign wealth fund, recently announced plans to invest 1 percent of its assets in real estate in each of the next three years (or more than $26 billion in total). The fund’s announced focus will be Asia and cities outside the United States and Europe—markets in which they have a sizable presence already.

Monday’s Numbers

The Trepp survey for the week ending June 27, 2014, showed spreads coming in an astounding 10-plus basis points, implying ten-year commercial real estate mortgage rates for institutional properties at less than 4 percent. Spreads coming in this much this quickly can only signify a market overwhelmed by capital looking for the safety implied by an institutional-quality commercial real estate mortgage, or competition for business among capital sources being so cutthroat that lenders will sacrifice yield for quantity.

We really don’t care what the cause is. If you have been sitting on the fence wondering whether or not to refinance now, the answer has to be a resounding yes.

Asking Spreads over U.S. Ten-Year Treasury Bonds in Basis Points (Ten-year commercial and multifamily mortgage loans for properties with 50% to 59% loan-to-value ratios)
	12/31/09	12/31/10	12/31/11	12/31/12	12/31/13	6/27/14	Month earlier
Office	342	214	210	210	162	139	146
Retail	326	207	207	192	160	139	140
Multifamily	318	188	202	182	157	123	131
Industrial	333	201	205	191	159	123	135
Averagespread	330	203	205	194	160	131	138
10-yearTreasury	3.83%	3.29%	2.88%	1.64%	3.04%	2.54%	2.52%

The Cushman & Wakefield Equity, Debt, and Structured Finance Group’s monthly Capital Markets Update of commercial real estate mortgage spreads, dated June 5, 2014, showed spreads coming in 15 to as much as 20 basis points since the prior survey dated May 9 as lenders compete for business in a very competitive business environment. No one expects this to change in the near term.

Ten-Year Fixed-Rate Commercial Real Estate Mortgages (as of June 5, 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: +2.97 percent

Standard & Poor’s 500 Stock Index: +6.59 percent

NASD Composite Index (NASDAQ): +7.41 percent

Russell 2000: +3.83 percent

Morgan Stanley U.S. REIT Index: +12.26 percent

Year-to-Date Global CMBS Issuance (in $ billions as of 7/3/14)
	2014	2013
U.S.	$40.6	$43.9
Non-U.S.	0.9	7.4
Total	$41.5	$51.3
Source: Commercial Mortgage Alert.

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

U.S. Treasury Yields
	12/31/12	12/31/13	7/3/14
3-month	0.08%	0.07%	0.02%
6-month	0.12%	0.10%	0.06%
2-year	0.27%	0.38%	0.49%
5-year	0.76%	1.75%	1.71%
7-year	1.25%	2.45%	2.33%
10-year	1.86%	3.04%	2.63%

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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.