Posted by: BayAreaComRE | March 31, 2010

Capital Markets Update – Week of March 31st

Cushman & Wakefield Sonnenblick Goldman is our investment banking arm, providing highly specialized debt structuring, debt and equity placement, hospitality financing and sales, note sales and associated advisory services. We get updates on their world often, here is the latest:

The surge of institutional “core” capital into the commercial real estate market is being widely registered. Among lenders, fixed-rate lending quotes for class “A” office and industrial properties located in major markets have settled in a range from 5.75 – 6.25%. Equity investors are bidding up class “A” properties. Multi-family assets are now routinely selling below 6.50% capitalization rates, with the best deals pricing inside of 6%. Core office pricing is likely to follow the same arc, with several major deals being negotiated in NYC, Boston and Washington, D.C. setting new post-Lehman benchmarks.

Spreads on super-senior AAA CMBS bonds have continued to tighten despite the fact that the TALF program that provided financing for buyers of legacy AAA bonds has ended. Super-seniors are now trading at roughly 395 over swaps, which represents an improvement of 60 basis points in the past 30 days.

Many debt funds and yield-driven balance sheet lenders are looking hard at the market and trying to determine how best to improve their loan spreads. Given a choice between taking greater lending risk in strong markets (i.e., increasing LTV) and pursuing conservatively-underwritten loans in secondary markets or getting into less popular asset classes, we believe that lenders will dial up the leverage in primary markets. This will be a boon for private owners in the best markets, but will exacerbate the tiering of the market that we have already commented on in the past.

Consumer spending has climbed for five straight months and a broad range of retailers, from Best Buy to Nike to Tiffany’s, are reporting strong revenue and income growth.

Thank you to Chris Moyer of Cushman & Wakefield Sonnenblick Goldman, for the update.

Previous posts can be found here: March 10, Jan 26th, & December 21st.

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