For the 14th consecutive trailing 12-month period, the NCREIF National Property Index, which comprises 6,968 properties valued at more than $366 billion owned by institutional investors, showed double-digit returns (composed of income and appreciation in value), reflecting a combination of continuing improvement in property fundamentals and high levels of investor demand for income-producing assets.

Index returns equaled 11.2 percent for the trailing 12 months ending March 31, 2014, as compared with 11.0 percent for the prior period ending December 31, 2013.

The leading property sector in terms of returns was retail with trailing 12-month results equal to 13.5 percent, followed by industrial (12.6 percent), office (10.2 percent), and multifamily (10.0 percent).

On a regional basis, the South ranked first with total returns for the trailing 12-month period of 12.9 percent, followed by the West (12.2 percent), the Midwest (10.7 percent), and the East (9.2 percent).

Commercial Real Estate Mortgage Lending’s Second Top Ten

In our view, many expend too much energy chasing the top ten commercial real estate mortgage lenders when a source in the second top ten—i.e., numbers 11 through 20—will do just as well and may be easier to do business with. It’s not that their underwriting standards will be less exacting; they may even be more stringent. But the atmosphere may be less intense and the environment a little more user-friendly and they may know their individual market better.

That said, the second top ten loan contributors to U.S. commercial mortgage–backed securities (CMBS) deals, banks ranked by commercial and multifamily loan holdings, and mortgage originations among insurance companies were as follows:

Loan contributors to
U.S. CMBS deals
Banks ranked by
commercial real estate loans
Mortgage originations by insurance companies
1 Starwood Mortgage Capital General Electric Capital Jackson National
2 RBS Zions Bancorporation Nationwide
3 MC-Five Mile Santander Holdings Pacific Life
4 UBS Regions Financial Aegon
5 CIBC American International Group Standard Insurance
6 Barclays SunTrust Banks Lincoln National
7 Rialto Commercial Mortgage Unionbancal AXA Financial
8 Bancorp Bank BancWest Aviva
9 Liberty Island People’s United American National
10 Credit Suisse BBVA Compass Bancshares Thrivent Financial

Volatility or the Lack Thereof

Recently, the VIX—an index that measures volatility—closed at its lowest level since February 2007, while the Standard & Poor’s 500 stock index closed at an all-time high. Credit spreads have tightened across the board with the cost of insuring debt (via a credit default swap) of the 150 largest investment-grade issuers in the S&P 500 as well as U.S. high-yield debt are at postcrisis lows.

You can interpret the above in many ways. On a positive basis, interest rates are low and likely to stay that way for a “considerable” period, the economy is growing (albeit more slowly than we would like), equity and debt are plentiful, the Fed as well as the other central banks are in control, and all’s right with the world. On the other hand, maybe unfounded optimism is causing investors, bankers, and traders to ignore common sense and evidence of “bubblets” (bubbles in training) and “misprice” risk.

REITWeek 2014: Key Takeaways

REITWeek is an invitation-only gathering of real estate investment trust (REIT) management, institutional investors, real estate securities analysts, and real estate investment bankers. In addition to its broad educational program, the conference serves as a medium for formal and informal meetings between the players.

The following is a brief summary of the key takeaways from REITWeek as seen through the eyes of one of the securities analysts in attendance:

  1. Development remains under control and additions to supply are sparse, with the possible exception of multifamily property in a few select markets. Demand for space and underlying fundamentals are continuing to improve in tune with the economy.
  2. Interest rates seem to be out of the equation, with expectations that interest rates and capitalization rates will remain low for a relatively long time.
  3. REITs’ strong returns year-to-date is causing some investors to question whether multiples and valuations aren’t getting ahead of themselves.

Monday’s Numbers

The Trepp survey for the week ending June 13 showed spreads implying ten-year commercial real estate mortgage rates for institutional properties remaining at +/–4 percent. The markets seem relatively quiet, having absorbed another round of tapering by the Fed; everyone seems to believe that rates will remain at current levels absent some form of “event.”

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 6/13/14 Month earlier
 Office 342 214 210 210 162 149 147
 Retail 326 207 207 192 160 141 140
 Multifamily 318 188 202 182 157 134 135
 Industrial 333 201 205 191 159 136 136
 Averagespread 330 203 205 194 160 140 142
 10-yearTreasury 3.83% 3.29% 2.88% 1.64% 3.04% 2.60% 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 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: +2.08 percent

Standard & Poor’s 500 Stock Index: +6.01 percent

NASD Composite Index (NASDAQ): +4.38 percent

Russell 2000: +1.75 percent

Morgan Stanley U.S. REIT Index: +12.95 percent


Year-to-Date Global CMBS Issuance

(in $ billions as of 6/13/14)

2014 2013
U.S. $38.0 $41.4
Non-U.S. 0.5 7.4
Total $38.5 $48.8
Source: Commercial Mortgage Alert.


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


U.S. Treasury Yields

12/31/12 12/31/13 6/20/14
 3-month 0.08% 0.07% 0.02%
 6-month 0.12% 0.10% 0.04%
 2-year 0.27% 0.38% 0.46%
 5-year 0.76% 1.75% 1.68%
 7-year 1.25% 2.45% 2.05%
 10-year 1.86% 3.04% 2.61%