Monday’s Numbers: September 22, 2014

The Trepp survey for the week ending September 12 showed average spreads coming in about 5 basis points. The implied rate for ten-year, modestly leveraged commercial real estate mortgages was 4.0 percent, 64 basis points lower than year-end 2013. It remains a great time to be a borrower.

September 22, 2014

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The Trepp survey for the week ending September 12 showed average spreads coming in about 5 basis points after widening the previous week. The majority of analysts seem to agree with the Fed’s continued assurance that it is in control and knows what it is doing, as dire predictions are few and far between, at least for the moment. The first change in rates appears to have been pushed forward another quarter. The implied rate for ten-year, modestly leveraged commercial real estate mortgages was 4.0 percent, 64 basis points lower than year-end 2013. It remains a great time to be a borrower.

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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)
	12/31/10	12/31/11	12/31/12	12/31/13	This week (9/12/14)	Last week (9/5/14)	Month earlier
Office	214	210	210	162	141	146	146
Retail	207	207	192	160	138	143	138
Multifamily	188	202	182	157	137	140	136
Industrial	201	205	191	159	137	140	137
Averagespread	203	205	194	160	138	143	139
10-yearTreasury	3.29%	2.88%	1.64%	3.04%	2.62%	2.42%	2.46%

The Cushman & Wakefield Equity, Debt, and Structured Finance Group’s monthly Capital Markets Update of commercial real estate mortgage spreads, dated August 7, showed spreads coming in about 5 basis points compared with the previous survey, dated June 10, as lenders continue to compete for business; the implied all-in cost ranges from 4.25 percent to 4.50 percent.

Ten-Year Fixed-Rate Commercial Real Estate Mortgages (as of August 7, 2014)
Property	Maximumloan-to-value	Class A	Class B/C
Multifamily (agency)	75–80%	T +160	T +170
Multifamily (nonagency)	70–75%	T +155	T +160
Anchored retail	70–75%	T +175	T +185
Strip center	65–70%	T +175	T +185
Distribution/warehouse	65–70%	T +175	T +185
R&D/flex/industrial	65–70%	T +185	T +190
Office	65–75%	T +175	T +185
Full-service hotel	55–65%	T +235	T +255
Debt-service-coverage ratio assumed to be greater than 1.35 to 1.

Year-to-Date Public Equity Capital Markets

Dow Jones Industrial Average: +11.42%

Standard & Poor’s 500 Stock Index: +8.77%

NASD Composite Index (NASDAQ): +9.65%

Russell 2000: –1.44%

Morgan Stanley U.S. REIT Index: +9.95%

Year-to-Date Global CMBS Issuance (in $ billions as of 9/12/14)
	2014	2013
U.S.	$65.1	$60.5
Non-U.S.	1.9	8.5
Total	$67.0	$69.0
Source: Commercial Mortgage Alert.

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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.