According to the Mortgage Bankers Association, delinquency rates for commercial real estate mortgages continued to decline during the fourth quarter of 2013, reaching record low levels:
- Life insurance company portfolios (60 or more days delinquent): 0.05 percent, as compared with the high of 7.53 percent during the second quarter of 1992.
- Freddie Mac (60 or days delinquent): 0.09 percent, as compared with the high of 6.81 percent during the fourth quarter of 1992.
- Fannie Mae (60 or more days delinquent): 0.10 percent, as compared with the high of 3.62 percent during the fourth quarter of 1991.
- Commercial banks and thrifts (90 or more days delinquent on in nonaccrual): 1.70 percent, as compared with the high of 6.58 percent during the second quarter of 1991.
- CMBS (30 or more days delinquent or in REO): 6.97 percent, as compared with the high of 9.02 percent during the second quarter of 2011.
Buy-Sell-Hold Investment Recommendations Remain Substantially Unchanged
According to Real Estate Research Corporation’s most recent investment survey, institutional investors’ and advisers’ buy-sell-hold property sector opinions remained substantially unchanged during the fourth quarter of 2014, as follows:
Buy | Sell | Hold | |
| Office: CBD | 36% | 32% | 32% |
| Office: suburban | 43% | 19% | 38% |
| Industrial: warehouse | 58% | 13% | 29% |
| Industrial: R & D | 30% | 13% | 57% |
| Industrial: flex | 32% | 18% | 50% |
| Retail: regional mall | 6% | 33% | 61% |
| Retail: power center | 20% | 25% | 55% |
| Retail: neighborhood | 45% | 10% | 45% |
| Multifamily | 30% | 52% | 18% |
| Hospitality | 28% | 17% | 55% |
| 4Q2014 average | 33% | 23% | 44% |
| 3Q2014 average | 31% | 25% | 44% |
Monday’s Numbers
The Trepp survey for the period ending February 28, 2014, showed spreads drifting down +/– 3 basis points and currently averaging 141 basis points over ten-year U.S. Treasuries. The implied ten-year rate for properties with 50 percent to 59 percent loan-to-value ratios declined to 4.18 percent.
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 | 2/28/14 | Month earlier | |
| Office | 342 | 214 | 210 | 210 | 162 | 144 | 158 |
| Retail | 326 | 207 | 207 | 192 | 160 | 143 | 155 |
| Multifamily | 318 | 188 | 202 | 182 | 157 | 137 | 149 |
| Industrial | 333 | 201 | 205 | 191 | 159 | 139 | 153 |
| Average spread | 330 | 203 | 205 | 194 | 160 | 141 | 154 |
| 10-year Treasury | 3.83% | 3.29% | 0.88% | 1.64% | 3.04% | 2.77% | 2.66% |
The most recent Cushman & Wakefield Equity, Debt, and Structured Finance Group’s monthly Capital Markets Update of commercial real estate mortgage spreads, dated March 5, 2014, showed spreads unchanged during the most recent survey period.
In their comment accompanying the survey, C&W noted the following:
- Floating-rate lenders (CMBS, commercial banks, and public and private debt funds) are becoming increasingly active. Floating-rate loans are often used to finance transition properties, allowing the borrower to prepay without penalty, upsize the loan based on increases in cash flow (and therefore property value), and pay for tenant and other capital improvements. Loans are priced at LIBOR plus a spread in the high 100s to 400s.
- Real Capital Analytics reported that U.S. real estate investment from China tripled last year while investment from Middle Eastern sources doubled during that period.
- CMBS delinquencies decreased for the ninth consecutive month. Trepp LLC noted that this is the first time the rate has been below 7 percent since February 2010. Today’s rate is 264 basis points below where it stood a year ago.
Ten-Year Fixed-Rate Commercial Real Estate Mortgages (as of January 8, 2014) | |||
Property | Maximum | Class A | Class B |
| Multifamily (agency) | 75–80% | T +175 | T +180 |
| 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: –1.75%
Standard & Poor’s 500 Stock Index: +1.61%
NASD Composite Index (NASDAQ): +3.82%
Russell 2000: +3.41%
Morgan Stanley U.S. REIT Index: +5.57%
Year-to-Date Global CMBS Issuance | ||
2014 | 2013 | |
| U.S. | $13.0 | $19.6 |
| Non-U.S. | 0.0 | 1.0 |
| Total | $13.0 | $20.7 |
| Source: Commercial Mortgage Alert | ||
Year-to-Date Public U.S. Treasury Yields
U.S. Treasury Yields | |||
12/31/12 | 12/31/13 | 3/8/14 | |
| 3-month | 0.08% | 0.07% | 0.05% |
| 6-month | 0.12% | 0.10% | 0.08% |
| 2-year | 0.27% | 0.38% | 0.37% |
| 5-year | 0.76% | 1.75% | 1.64% |
| 7-year | 1.25% | 2.45% | 2.26% |
| 10-year | 1.86% | 3.04% | 2.79% |
