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2 0 1 5 N C R E I F C O N F E R E N C E
STATE OF THE CAPITAL MARKETS
This document was presented during the 2015 NCREIF Winter Conference. The author(s) take full responsibility for all content. This posting is for informational purposes only; neither NCREIF nor its Board express any opinion of the content presented herein.
AGENDA
Current Trends in Treasuries Current Borrowing Rates CMBS Lending Status Recent Originations Capital Flows Summary/Conclusions
This document was presented during the 2015 NCREIF Winter Conference. The author(s) take full responsibility for all content. This posting is for informational purposes only; neither NCREIF nor its Board express any opinion of the content presented herein.
CURRENT TRENDS IN TREASURIES
Through the end of 2015, will Treasury Yields increase, decrease, or stay the same?
This document was presented during the 2015 NCREIF Winter Conference. The author(s) take full responsibility for all content. This posting is for informational purposes only; neither NCREIF nor its Board express any opinion of the content presented herein.
4 2015 NCREIF CONFERENCE | CBRE 4
HISTORIC 10-YEAR TREASURY
This document was presented during the 2015 NCREIF Winter Conference. The author(s) take full responsibility for all content. This posting is for informational purposes only; neither NCREIF nor its Board express any opinion of the content presented herein.
5 2015 NCREIF CONFERENCE | CBRE 5
Since Q4’14 10-YEAR U.S. TREASURY
1.50%
1.70%
1.90%
2.10%
2.30%
2.50%
10-Year UST Daily Close 10-Year UST as of 1/2/15 Average 10-Year UST from 10/1/14 to 3/3/15
This document was presented during the 2015 NCREIF Winter Conference. The author(s) take full responsibility for all content. This posting is for informational purposes only; neither NCREIF nor its Board express any opinion of the content presented herein.
6 2015 NCREIF CONFERENCE | CBRE 6
Actual and Q4 Philly Fed Forecasts 10-YEAR TREASURY YIELDS
This document was presented during the 2015 NCREIF Winter Conference. The author(s) take full responsibility for all content. This posting is for informational purposes only; neither NCREIF nor its Board express any opinion of the content presented herein.
7 2015 NCREIF CONFERENCE | CBRE 7
10-Year Treasury TOP INVESTMENT BANK ESTIMATES
1.75%
2.00%
2.25%
2.50%
2.75%
3.00%
3.25%
3.50%
3.75%
1Q '15 2Q '15 3Q '15 4Q '15 1Q '16 2Q'16
Current 10-Year Yield
Allianz
BBVA
BMO Capital
Cantor Fitzgerald
CIBC
Coamerica
Commerzbank
Freddie Mac
Goldman Sachs
Heartland Financial
HSH Nordbank
ING
MBA
Moodys Capital
Morgan Stanley
NAHB
Nomura
Standard Chartered
Wells Fargo
Average
Source: Bloomberg News Monthly Survey February 2015
This document was presented during the 2015 NCREIF Winter Conference. The author(s) take full responsibility for all content. This posting is for informational purposes only; neither NCREIF nor its Board express any opinion of the content presented herein.
8 2015 NCREIF CONFERENCE | CBRE 8
Median CAPITAL MARKETS 10-YEAR UST FORECAST
2.00%
2.20%
2.40%
2.60%
2.78%
2.90%
2.20%
2.40%
2.65%
2.80% 2.85%
3.03%
1.50%
2.00%
2.50%
3.00%
3.50%
1Q '15 2Q '15 3Q '15 4Q '15 1Q '16 2Q'16
Current Median Previous Months' Median
Source: Bloomberg News Monthly Survey February 2015
This document was presented during the 2015 NCREIF Winter Conference. The author(s) take full responsibility for all content. This posting is for informational purposes only; neither NCREIF nor its Board express any opinion of the content presented herein.
CURRENT BORROWING METRICS
Through the end of 2015, will all-in commercial interest rates increase, decrease, or stay the same?
This document was presented during the 2015 NCREIF Winter Conference. The author(s) take full responsibility for all content. This posting is for informational purposes only; neither NCREIF nor its Board express any opinion of the content presented herein.
10 2015 NCREIF CONFERENCE | CBRE
CURRENT INDICATIVE RATES
Base Index Rate as of 3/3/2015 45% - 60% LTV 61% - 75% LTV
Treasuries Swaps Spread (BPS) Target Rate Range Spread (BPS) Target Rate Range
I. 5 YEAR TERM
Life Company 1.60% 125 - 175 2.85% - 3.35% 150 - 220 3.10% - 3.80%
CMBS 1.77% 200 - 250 3.77% - 4.27% 220 - 275 3.97% - 4.52%
GSE 1.60% 140 - 160 3.00% - 3.20% 190 - 210 3.50% - 3.70%
II. 7 YEAR TERM
Life Company 1.92% 120 - 170 3.12% - 3.62% 160 - 220 3.52% - 4.12%
CMBS 2.01% No bid Inefficient and thin market No bid Inefficient and thin market
GSE 1.92% 140 - 160 3.32% - 3.52% 180 - 200 3.72% - 3.92%
III. 10 YEAR TERM
Life Company 2.10% 120 - 160 3.30% - 3.70% 150 - 200 3.60% - 4.10%
CMBS 2.23% 150 - 185 3.73% - 4.08% 180 - 220 4.03% - 4.43%
GSE 2.10% 140 - 160 3.50% - 3.70% 170 - 190 3.80% - 4.00%
IV. BANKS
5 Year Fixed Rate 2.85% - 3.35% 3.10% - 3.80%
7 & 10 Year Fixed Rate 3.25% - 4.10% available for high quality and bank customers
Floating Rate Pricing range: LIBOR + 140-275 bps Average Pricing: L + 175-225 bps Debt Yield: 8.5%-9.5% for 50-65% LTV Term: 3-5+ years with extensions
V. MEZZ LENDERS
Loan to Value: Up to 80%-85% Interest Rate: 6% - 12%
This document was presented during the 2015 NCREIF Winter Conference. The author(s) take full responsibility for all content. This posting is for informational purposes only; neither NCREIF nor its Board express any opinion of the content presented herein.
11 2015 NCREIF CONFERENCE | CBRE
CBRE Debt Originations (includes both Agency and non-Agency loans) COUPON RATE ANALYSIS
0%
10%
20%
30%
40%
50%
2 2.5 3 3.5 4 4.5 5 5.5 6 6.5 7 7.5 8 8.5
Perc
ent o
f Tot
al
Dist
ribut
ion
< 10 mil >= 10 Mil
0%
10%
20%
30%
40%
50%
2 2.5 3 3.5 4 4.5 5 5.5 6 6.5 7 7.5 8 8.5
Perc
ent o
f Tot
al
Dist
ribut
ion
< 10 mil >= 10 Mil
Q4 2014
Q3 2014
0%
10%
20%
30%
40%
50%
2 2.5 3 3.5 4 4.5 5 5.5 6 6.5 7 7.5 8 8.5< 10 mil >= 10 mil
Q2 2014
Perc
enta
ge o
f Tot
al
Dist
ribut
ion
Source: CBRE Research
This document was presented during the 2015 NCREIF Winter Conference. The author(s) take full responsibility for all content. This posting is for informational purposes only; neither NCREIF nor its Board express any opinion of the content presented herein.
12 2015 NCREIF CONFERENCE | CBRE
AVERAGE LTV - CBRE DEBT ORIGINATIONS Well Below 2007 Peak
50
55
60
65
70
75
80
Q1
2003
Q2
2003
Q3
2003
Q4
2003
Q1
2004
Q2
2004
Q3
2004
Q4
2004
Q1
2005
Q2
2005
Q3
2005
Q4
2005
Q1
2006
Q2
2006
Q3
2006
Q4
2006
Q1
2007
Q2
2007
Q3
2007
Q4
2007
Q1
2008
Q2
2008
Q3
2008
Q4
2008
Q1
2009
Q2
2009
Q3
2009
Q4
2009
Q1
2010
Q2
2010
Q3
2010
Q4
2010
Q1
2011
Q2
2011
Q3
2011
Q4
2011
Q1
2012
Q2
2012
Q3
2012
Q4
2012
Q1
2013
Q2
2013
Q3
2013
Q4
2013
Q1
2014
Q2
2014
Q3
2014
Q4
2014
Commercial Multifamily-Related
Average LTV %
This is the average LTV for deals with fixed rate permanent debt.
Source: CBRE Research
This document was presented during the 2015 NCREIF Winter Conference. The author(s) take full responsibility for all content. This posting is for informational purposes only; neither NCREIF nor its Board express any opinion of the content presented herein.
13 2015 NCREIF CONFERENCE | CBRE
LOAN METRICS - CBRE DEBT ORIGINATIONS Debt Service Coverage Ratio Loan Constant
Percentage of Loans with Interest-Only Terms Average Debt Yield and Cap Rate
Source: CBRE Research
1.52
1.20
1.25
1.30
1.35
1.40
1.45
1.50
1.55
1.60
Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014
6.4%
4.0%
4.5%
5.0%
5.5%
6.0%
6.5%
7.0%
Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014
52%
13%
0%
10%
20%
30%
40%
50%
60%
70%
Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014
Partial Interest-Only Full Interest-Only
10.3%
6.6%
4%
5%
6%
7%
8%
9%
10%
11%
Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014
Debt Yield Cap Rate
This document was presented during the 2015 NCREIF Winter Conference. The author(s) take full responsibility for all content. This posting is for informational purposes only; neither NCREIF nor its Board express any opinion of the content presented herein.
CMBS LENDING STATUS
Compared to 2014, will CMBS do more or less in terms of loan volume in 2015?
This document was presented during the 2015 NCREIF Winter Conference. The author(s) take full responsibility for all content. This posting is for informational purposes only; neither NCREIF nor its Board express any opinion of the content presented herein.
15 2015 NCREIF CONFERENCE | CBRE 15
($ billions) COMMERCIAL & MULTIFAMILY ORIGINATIONS
Source: Mortgage Bankers Association
This document was presented during the 2015 NCREIF Winter Conference. The author(s) take full responsibility for all content. This posting is for informational purposes only; neither NCREIF nor its Board express any opinion of the content presented herein.
16 2015 NCREIF CONFERENCE | CBRE 16
($ billions) COMMERCIAL & MULTIFAMILY ORIGINATIONS
$86
$94
$110
$0
$20
$40
$60
$80
$100
$120
2013 2014 2015Forecast
CMBS Volume
Source: Mortgage Bankers Association
Note: 2015 Forecast shown totaling $110 billion is the low-end forecast. High-end forecast is $125 billion.
This document was presented during the 2015 NCREIF Winter Conference. The author(s) take full responsibility for all content. This posting is for informational purposes only; neither NCREIF nor its Board express any opinion of the content presented herein.
17 2015 NCREIF CONFERENCE | CBRE
WHO'S LENDING ON COMMERCIAL PROPERTIES?
Source: CBRE DSF
Other: REITs, Funds, Credit Companies, SBA, etc.
0%
5%
10%
15%
20%
25%
30%
35%
40%
Banks Life Companies CMBS Other
Q4 2013
Q4 2014
This document was presented during the 2015 NCREIF Winter Conference. The author(s) take full responsibility for all content. This posting is for informational purposes only; neither NCREIF nor its Board express any opinion of the content presented herein.
18 2015 NCREIF CONFERENCE | CBRE
WHO’S LENDING ON MULTIFAMILY PROPERTIES?
Source: CBRE DSF
0%
10%
20%
30%
40%
50%
60%
70%
Agency Banks Life Company Conduit Other
Q4 2013
Q4 2014
This document was presented during the 2015 NCREIF Winter Conference. The author(s) take full responsibility for all content. This posting is for informational purposes only; neither NCREIF nor its Board express any opinion of the content presented herein.
RECENT ORIGINATIONS
This document was presented during the 2015 NCREIF Winter Conference. The author(s) take full responsibility for all content. This posting is for informational purposes only; neither NCREIF nor its Board express any opinion of the content presented herein.
20 2015 NCREIF CONFERENCE | CBRE 20
APOLLO WORLD HEADQUARTERS $91,500,000, 5 year term, full term I/O, 50.0% LTV, Fixed Rate of 3.66%
This document was presented during the 2015 NCREIF Winter Conference. The author(s) take full responsibility for all content. This posting is for informational purposes only; neither NCREIF nor its Board express any opinion of the content presented herein.
21 2015 NCREIF CONFERENCE | CBRE 21
CAMELBACK SQUARE $26,568,000, 3 year term, full term I/O, 65.0% LTV, Floating Rate of 2.45%
This document was presented during the 2015 NCREIF Winter Conference. The author(s) take full responsibility for all content. This posting is for informational purposes only; neither NCREIF nor its Board express any opinion of the content presented herein.
22 2015 NCREIF CONFERENCE | CBRE 22
RANCHO TEMECULA TOWN CENTER $28,000,000, 12 year term, full term I/O, 46.7% LTV, Fixed Rate of 4.18%
This document was presented during the 2015 NCREIF Winter Conference. The author(s) take full responsibility for all content. This posting is for informational purposes only; neither NCREIF nor its Board express any opinion of the content presented herein.
CAPITAL FLOWS
Through the end of 2015, will capital flows into the U.S. increase, decrease, or stay the same?
This document was presented during the 2015 NCREIF Winter Conference. The author(s) take full responsibility for all content. This posting is for informational purposes only; neither NCREIF nor its Board express any opinion of the content presented herein.
24 2015 NCREIF CONFERENCE | CBRE 24
Top 10 Sources over the Last 3 Years
FOREIGN CAPITAL INFLOWS
Top 10 Sources in 2014
Total foreign direct investment in U.S. real estate totaled $41 billion in 2014.
This document was presented during the 2015 NCREIF Winter Conference. The author(s) take full responsibility for all content. This posting is for informational purposes only; neither NCREIF nor its Board express any opinion of the content presented herein.
25 2015 NCREIF CONFERENCE | CBRE 25
Top 10 Sources over the Last 3 Years FOREIGN CAPITAL INFLOWS
• The direct effects of a stronger U.S. dollar on commercial real estate fundamentals are likely to be overall positive. A possible downside is that the rising dollar might diminish capital flows from countries experiencing the “double whammy” of both falling oil prices and depreciating currencies. However, domestic capital is still abundant.
• Industrial and “bread-and-butter” retail (as opposed to luxury) assets will benefit the most as
consumers, flush with the “oil dividend”, take advantage of the cheaper prices of goods. • According to Real Capital Analytics, the total volume of U.S. properties sold over the last three
years is approximately $1.1 trillion, and foreign investors accounted for only 10.9% of that total. This represents 39 countries and no country, except for Canada, accounts for as much as 10% of all foreign investments into U.S. commercial real estate.
• Capital flows into the U.S. are deep and diverse. • The fact that the U.S. is the only growth story in town will mean that overseas investment
interest will remain high.
This document was presented during the 2015 NCREIF Winter Conference. The author(s) take full responsibility for all content. This posting is for informational purposes only; neither NCREIF nor its Board express any opinion of the content presented herein.
SUMMARY/CONCLUSIONS
This document was presented during the 2015 NCREIF Winter Conference. The author(s) take full responsibility for all content. This posting is for informational purposes only; neither NCREIF nor its Board express any opinion of the content presented herein.
27 2015 NCREIF CONFERENCE | CBRE
2015 OUTLOOK
Return of financial market volatility
Underlying fundamentals continue to improve
Market sentiment remains positive
Attention to slowing economic growth outside the U.S.
This document was presented during the 2015 NCREIF Winter Conference. The author(s) take full responsibility for all content. This posting is for informational purposes only; neither NCREIF nor its Board express any opinion of the content presented herein.
28 2015 NCREIF CONFERENCE | CBRE 28
LENDERS IN 2015
• Life Company volume in 2015 expected to equal or exceed 2014 volume by 5% to 10%
• Large loans and portfolio loans are in demand
• More conservative, but great execution
• Forwards returning and some offering higher yielding mezzanine debt
• The cost of locking a forward rate is free for the first 3 months, then 2 to 4 bps per month for up to 9 additional months
• Many have instituted rate floors that start around 3.5% for a 10-yr term
• Increasing willingness to do deals in secondary markets
• CMBS increased dramatically in 2014 ($94B, up from $86B in 2013)
• Average prediction for 2015 production is $110-125 B. Off to a strong start in 2015
• With approximately 35 CMBS lenders, competition is fierce
• Higher LTV’s and more aggressive underwriting returning to the market. Compete on I/O & proceeds
• Majority of deals are 10-year terms, but 5- and 7-year terms are available
• Full-term I/O loans are available at 65% LTV
• Actively using the balance sheet again, local banks filling a void
• Attractive rates, particularly LIBOR-based floaters that can be swapped
• Most active in 3-7 year terms, competitive in local markets
• Can be very competitive with conduits, life companies and GSE’s
• Basel III capital requirements may cause some banks to become more conservative in 2015
• As year goes one, may see banks increase pricing to offset new risk retention rules
(FREDDIE & FANNIE)
• 2014 volume of $56B up slightly from 2013
• Great execution in primary through tertiary markets
• Market share increased in Q3 and Q4 2014 as new head of regulator FHFA has encouraged new products (affordable, small balance loans and manufactured housing) and excluded them from production volume limits.
• 2015 volume expectation of well over $60B indicates an increase of approximately 10% over 2014 volume
• Dominant lenders for the apartment segment
• Both Fannie and Freddie are tweaking their ARM products, will be rolling out more competitive interest rate cap structures
BANKS GSE LIFE COMPANIES CMBS
This document was presented during the 2015 NCREIF Winter Conference. The author(s) take full responsibility for all content. This posting is for informational purposes only; neither NCREIF nor its Board express any opinion of the content presented herein.
29 2015 NCREIF CONFERENCE | CBRE 29
Strong Liquidity and Low Rates COMMERCIAL MORTGAGE DEBT MARKET
• There is tremendous liquidity in the commercial mortgage markets leading to continued strong competition amongst lenders.
• Continued attractive interest rates both short- and long-term. • There will be a gradual easing of underwriting standards as the competitive landscape
increases. This will include higher LTVs, more interest-only components and increased lending activity in secondary markets.
• The industry seems very comfortable that there is sufficient debt capital to fund the 2015 deals,
including the “wall of maturities”. • Given the competition, it is difficult to predict which lender will win a given deal. Most deals
should be widely marketed into the debt capital markets in order to capture the best available loan structure and economics. It remains a borrower’s market for 2015.
This document was presented during the 2015 NCREIF Winter Conference. The author(s) take full responsibility for all content. This posting is for informational purposes only; neither NCREIF nor its Board express any opinion of the content presented herein.
QUESTIONS?
This document was presented during the 2015 NCREIF Winter Conference. The author(s) take full responsibility for all content. This posting is for informational purposes only; neither NCREIF nor its Board express any opinion of the content presented herein.
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