Capital Markets Update

Spring time in real estate?

Very interesting commentary from the capital markets group at Cushman & Wakefield. What this means for tenants is that the log jam of commercial real estate credit is beginning to break. When the lenders start lending, then more deals can get done. Put simply, this is another sign of the beginning of a recovery.

The report with detailed quotes is attached here. Below are a few summary comments:

Capital continues to flow into real estate, with lenders and equity investors reporting greater desire/capacity to put money to work. Talk of a “liquidity bubble” may be overdone, as capital providers are still very focused on strong sponsors and major markets, but liquidity is certainly having a strong impact on certain markets and assets. For instance, class A multi-family assets are now routinely trading at cap. rates in the low- to mid-6’s, and we are hearing of a few deals trading inside of 6%.

Mezzanine lending spreads are finally starting to improve after nearly 24 months of seeing subordinate debt quotes in the range of 16-22%. Several new funds have come into the market and are looking at providing leverage up to 80-85% LTV at target returns in the range of 10-14%. 

Spreads have come in nearly 25 basis points during the past two weeks, with 10-year, Super-senior AAA bonds tightening to 430 basis points over the Treasury. The nearly continuous rally in AAA spreads over the past 3 months is being reflected in the enthusiasm of lenders for conduit loan product. Look for the first large multi-sponsor securitization involving assets other than multi-family in the next 6-8 weeks. Every major bank is either formally back in the market underwriting deals or is in the process of hiring loan origination professionals. We expect the first pools to be “lumpy,” circa-$1B offerings featuring strong sponsors that allow bond investors to underwrite nearly every asset in the pool.

Source: C&W Capital Markets Group

Ken Ashley

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