Monday’s Numbers: November 18, 2013

Where are interest rates going next? Up, obviously, but for planning purposes, it is important to hear from experts regarding how much and when the changes are expected. The following matrix includes information from J.P. Morgan, Barclays Capital, Bank of America, and Morgan Stanley.

Rates of Return Remain Attractive to Institutional Investors

The National Council of Real Estate Investment Fiduciaries (NCREIF) recently released its property performance index for the third quarter of 2013. The NCREIF Property Index is composed of 7,027 properties with an estimated market value of $343.6 billion. Details regarding the composition of the index can be found at www.ncreif.org.

For the quarter ended September 30, the index showed a return of 2.59 percent, composed of property income equal to 1.37 percent and property value appreciation of 1.22 percent. On a trailing 12-month basis, the index’s return was 11.0 percent, composed of property income of 5.7 percent and property appreciation of 5.1 percent. Whether quarter-over-quarter or year-over-year, these rates of return remain very attractive to both domestic and offshore institutional investors and may provide a floor for core property pricing in the 24-hour gateway markets.

Monday’s Numbers

The Trepp survey for the period ended November 8 showed spreads widening a basis point here and there, as the market focus has turned to closing deals by year-end. Absent an “event” of some kind, spreads can be expected to stay within a narrow band through year-end 2013.

The most recent Cushman & Wakefield Equity, Debt, and Structured Finance Group’s monthly survey of commercial real estate mortgage spreads, dated November 4, showed spreads coming in 15 basis points during the survey period.

Applying an average spread of 200 basis points, borrowers are looking at all-in costs of 4.75 to 5.0 percent for fixed-rate mortgages with a 70 to 75 percent loan-to-value ratio. These spreads must be attractive to both borrowers and lenders: the Mortgage Bankers Association recently reported third-quarter commercial/multifamily origination volume was up 29 percent year-over-year. The increase in origination volume was led by commercial mortgage–backed securities, which saw volume increase 105 percent year-over-year, followed by life insurance companies with a 72 percent increase year-over-year.

Year-to-Date Public Equity Capital Markets

Dow Jones Industrial Average: +21.81%
Standard & Poor’s 500 Stock Index: +26.08%
NASDAQ composite: +32.01%
Russell 2000: +31.42%
Morgan Stanley U.S. REIT index: +2.76%