Equity, Debt & Structured Finance Capital Markets Update

November 15, 2019
Posted in: Alerts
By: Gerson

Market Commentary

Originally published by Cushman & Wakefield on November 15, 2019 at https://comms.cushwakedigital.com/rv/ff005555a99a2e2272de11615c47ba90cef0e1cf

Equities marched higher during the past month along with bond yields as investors moved to risk-on as US/China trade optimism and strong corporate earnings boosted sentiment. While typically there would have been some spread relief on elevated Ts, a flood of CMBS issuance clogged the market and spreads have remained flat to modestly wider during this period. While borrowing costs may broadly be up 20-30 bps during the past six weeks, it’s important to remember the all-in borrowing costs are down 110 to 130 bps y-o-y, and the same loan that may price in the upper 3%s now likely priced at +/- 5% just 12 months ago.

The Fed cut the target rate 25 bps at the end of October to 1.50% – 1.75%. With the recent movement in Ts and strong economic data, the Fed Funds futures imply there is only a 10% of an additional cut in December. Libor steadily declined in anticipation of the recent cut and has settled at 1.76%. Current projections are for Libor to decline to 1.41% in August 2021 before reversing course and starting a modest ascent.

As further evidence of broad liquidity for CRE, MBA recently reported in their Q3 Survey of Commercial/Multifamily Mortgage Bankers Origination that loan originations were 24% higher in the third quarter compared to a year ago and 15% higher YTD compared to 2018. Commercial banks saw the largest volume increase at 23% followed by agency lenders (15%), CMBS (5%) and insurance companies (3%). By asset class, industrial gained 43% on a number of mega deals followed by office (21%) and multifamily (14%). Not surprisingly, retail declined 13% (down 56% from 2016) and hotels declined 16% (although still 11% higher than 2016).

The phenomenon of coworking continues its aggressive growth. The global inventory is now approximately 125 msf, with more than 50 msf of it located in the United States. Cushman & Wakefield recently partnered with CoreNet Global to survey more than 550 key commercial real estate executives at organizations around the world. You can access the full report here.