Monday’s Numbers: August 20, 2012

“Everything You Ever Wanted to Know About Real Estate Investment Trusts”

Barclays Capital, Inc.’s Real Estate Investment Trust Research Department annually publishes “A Primer for REITs” (link no longer works) and has graciously granted us permission to post it on the ULI website so that our readers can download it. The Primer, which the BarCap team updates annually, provides an overview of the industry including history and performance, fundamental and property sector drivers, and access to their real estate stock valuation framework.

Wave of Maturities Looms

According to Trepp, approximately $1.725 trillion of commercial real estate mortgages will mature between 2012 and 2016 of which approximately 65 percent have loan-to-value ratios exceeding 100 percent.

Now what? As lenders seem less and less interested in kicking the can down the road, borrowers will need to show up with additional funds to repay a portion of the maturing loan or to restructure the loan in some way. Many feel we are near the long expected “hammer time,"when lenders are financially sound enough to force the issue.

Monday’s Numbers

The Trepp, LLC survey showed commercial mortgage spreads widening about 5 basis points during the survey period as the markets head for a time out until after Labor Day. Floor pricing remains in the 4 percent to 5 percent range.

While few talk about it in public, the commercial real estate mortgage market’s dirty little secret is that some lenders may start to exhaust their 2012 allocations and have to ration remaining funds or sit on the sidelines for most of the remaining balance of the year, creating an inadvertent liquidity event.

The Cushman & Wakefield Equity, Debt, and Structured Finance Commercial Mortgage Spread monthly survey of commercial mortgage spreads showed spreads for 10-year, fixed rate mortgages, coming in 5 basis points, reinforcing our comments above regarding floor pricing by lenders.

Year-to-Date Public Equity Capital Markets

DJIA ⁽¹⁾: +8.66%
S & P 500 ^(2): +12.77%
NASDAQ ⁽³⁾: +18.10%
Russell 2000 ⁽⁴⁾:+10.66%
Morgan Stanley U.S. REIT ⁽⁵⁾:+13.92%

^{(1) Dow Jones Industrial Average. (2) Standard & Poor’s 500 Stock Index. (3) NASD Composite Index. (4) Small Capitalization segment of U.S. equity universe. (5) Morgan Stanley REIT Index.}

The next issue of Monday’s Numbers will be published on Monday, September 10.