Monday’s Numbers
The Trepp survey for the week ended June 6 showed spreads widening 3 to 5 basis points and the implied ten-year commercial real estate mortgage rate for institutional properties remaining at 4.00+/- percent. Year-to-date, the implied rate continues to hover near historical lows, declining 51 basis points since January 1, 2014. Borrowers, continue to enjoy the ride, but start to plan for the future because we all know this can’t last forever. While you may leave a little something on the table, now may be the perfect time to lock in term and rates.
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 | 6/6/14 | Month earlier | |
| Office | 342 | 214 | 210 | 210 | 162 | 151 | 145 |
| Retail | 326 | 207 | 207 | 192 | 160 | 145 | 140 |
| Multifamily | 318 | 188 | 202 | 182 | 157 | 136 | 135 |
| Industrial | 333 | 201 | 205 | 191 | 159 | 140 | 138 |
Average spread | 330 | 203 | 205 | 194 | 160 | 143 | 140 |
10-year Treasury | 3.83% | 3.29% | 2.88% | 1.64% | 3.04% | 2.70% | 2.61% |
The Cushman & Wakefield Equity, Debt, and Structured Finance Group’s monthly Capital Markets Update of commercial real estate mortgage spreads, dated June 5, showed spreads coming in 15 to as much as 20 basis points since the previous 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.
In its “Market Commentary” accompanying the survey, C&W noted the following:
- The current data suggest that strength in the economy during the second quarter will more than offset the contraction experienced during the first quarter.
- Deal flow may be slightly lower than last year, but only at the margins.
Commercial mortgage–backed securities (CMBS) issuance, which is running slightly below last year’s pace, seems to be picking up, with a number of conduits readying offerings for marketing before June 30. - Ten-year Treasury yields continue to drop and spreads continue to narrow, bringing lending costs to their lowest levels in more than a year.
- At low loan-to-cost levels (50 percent or less), nonrecourse construction loans are becoming available from commercial banks in the range of LIBOR plus 400 basis points.
Ten-Year Fixed-Rate Commercial Real Estate Mortgages (as of June 5, 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: +1.20%
Standard & Poor’s 500 Stock Index: +4.75%
NASD Composite Index (NASDAQ): +3.21%
Russell 2000: +0.08%
Morgan Stanley U.S. REIT Index: +11.15%
Year-to-Date Global CMBS Issuance (in $ billions as of 6/13/14) | ||
| 2014 | 2013 | |
| U.S. | $36.0 | $39.0 |
| Non-U.S. | 0.5 | 7.4 |
| Total | $36.6 | $46.4 |
| Source: Commercial Mortgage Alert. | ||
Year-to-Date Public U.S. Treasury Yields
U.S. Treasury Yields | |||
| 12/31/12 | 12/31/13 | 6/14/14 | |
| 3-month | 0.08% | 0.07% | 0.04% |
| 6-month | 0.12% | 0.10% | 0.07% |
| 2-year | 0.27% | 0.38% | 0.49% |
| 5-year | 0.76% | 1.75% | 1.69% |
| 7-year | 1.25% | 2.45% | 2.15% |
| 10-year | 1.86% | 3.04% | 2.60% |
