• Treasuries continued to post gains last months as rates declined especially at the longer end of the yield curve. Commercial real estate lending spreads have remained flat to tighter, so overall borrowing costs have trended lower from this time last month. Liquid CMBS markets and successful risk retention integration make CMBS a very attractive financing option at the moment. With spreads lower than balance sheet lenders in most cases for cash flowing assets, it has put pressure on insurance companies and banks to either consider lower spreads or additional structural options such as flexible prepay or future funding to remain competitive. On low leverage, core properties, we are currently receiving quotes at tight as S + 110.
• C&W Capital Markets Research recently released the May 2017 Capital Markets Overview. You can access the full report which includes overviews on global and US markets as well as detailed analysis on office, retail, multifamily, industrial and hospitality markets.
• Real Capital Analytics reported in their April US Capital Trends report that YTD investment activity is down 17% YOY. While the 2016 relative to 2015 pullback was largely due to a decrease in portfolio and entity-level transactions, the more recent slowdown is associated with a sharp decline in single asset sales that began in December 2016. While megadeal slowdown is usually caused by a temporary change in access to capital, single asset sale slowdown can be caused by more fundamental changes such as concern about potential impacts on property investment from the Trump administration policies and growing uncertainty around interest rate increases – a liability in a debt-driven business. While the 10-yr UST has increased 50 bps from October 2016 to the end of April, cap rates are largely unchanged. The notable exception is the apartment market which has seen a 20 bps decline in cap rates but has also seen the most significant reversal in deal volume which indicates buyers are getting pickier on asset and locations.
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