The Ground Floor

This Week's Numbers and Newsworthy Notes

Newsworthy Notes

Cohen Financial Commercial Mortgage Markets Survey

"In this month's commercial spread survey, conduit lenders have indicated 10-Year CMBS spreads have on average increased by 142 basis points and 5-Year CMBS spreads have on average widened by 103 basis points since mid-January. [Net-Net: All-in cost for 5-year term -- 520 basis points over Treasuries; for 10-year term -- 462 basis points over Treasuries.]

Lenders surveyed this month cited a general lack of demand for CMBS paper as the continued reason for widening spreads. February did see the first transaction of 2008 to price in the Market as MSC 08-T29 priced on the 14th. The $1.2 billion transaction led by Morgan Stanley saw ten-year, super-senior AAAs price at 225 basis points over interest rate swaps. Comparatively, a transaction led by Morgan Stanley that priced in October of last year saw the AAAs go off at 44 basis points over swaps.

Historically wide spreads were also seen further down the credit stack, as the BBB+ class priced at Swaps + 1,150 basis points. In addition, the floating-rate market continues to be non-existent. All lenders indicated that the market is still in flux and they are being cautious with their lending parameters/underwriting. This is of course no surprise as liquidity issues and the risk of an oncoming recession are the general themes for the first part of 2008."

"What a difference a year makes"

	January 25, 2008	One Year Ago	Change
Prime Rate	6.50%	8.25%	-1.75%
Federal Funds Rate	3.50%	5.25%	-1.75%
3-Month LIBOR	3.31%	5.36%	-2.05%
3-month Treasury	2.29%	5.13%	-2.84%
10-year Treasury	3.65%	4.80%	-1.15%
30-year Treasury	4.33%	4.91%	-0.58%

Year-to-Date Equity Market Performance

DJIA⁽¹⁾: -7.83%
S & P 500⁽²⁾: -9.38%
NASDAQ⁽³⁾: -14.36%
Russell 2000⁽⁴⁾: -10.41%
MSCI U.S. REIT⁽⁵⁾: -4.76%

(1) Dow Jones Industrial Average.
(2) Standard & Poor’s 500 Stock Index.
(3) NASD Composite Index.
(4) Small Capitalization segment of U.S. equity universe.
(5) Morgan Stanley REIT Index.

U.S. Treasury Yields (as of March 1, 2008)

3-month: 1.84%
6-month: 1.81%
2-Year: 1.62%
5-Year: 2.46%
10-Year: 3.51%

Pricing of Various Tranches of Commercial Mortgage-Backed Securities (as of February 27, 2008)

Rating; Term; Spread to U.S. Treasury Bonds

AAA; 5 years; +360 basis points
AAA; 10 years; +316 basis points
AA; 10 years; +667 basis points
A; 10 years; +867 basis points
BBB; 10 years; +1317 basis points
BBB-; 10 years; +1467 basis points
BB; 10 years ; +1600 basis points
B; 10 years; +1900 basis points

Indicated Spreads for Conventional Commercial Mortgages (as of February 12, 2008)

	Commercial Mortgage Rate Spreads for 5-10 Year Fixed-Rate Mortgages
Property Type	<65% LTV	>65% LTV
Multifamily	+180 – 200	+220 – 240
Regional Malls	+220	+250 – 300
Strip/Power Centers	+220	+250 – 300
Multi-Tenant Industrial	+200 – 250	+225 – 350
CBD Office	+200 – 210	+250 – 350
Suburban Office	+210 – 220	+250 – 350
Full-Service Hotel	+220 – 250	+250 – 400
Limited-Service Hotel	+220 – 250	+250 – 400
	5-Year Treasury – 2.79%; 10-Year Treasury – 3.74%
Source: Cushman & Wakefield Sonnenblick-Goldman, LLC.

New York to Washington and Boston for $5 billion

The Northeast megalopolis enjoys the nation’s most extensive transit -- good urban systems in Boston, New York, Philadelphia, and Washington -- connected by Amtrak's Northeast corridor, linking 42 million people and a substantial share of the nation‘s economy. In addition, these communities grew up around transit -- they created transit-oriented development before the term became popular elsewhere. In a world of energy security, soaring gas prices and concerns over carbon footprint, focusing growth in the Northeast is an ideal sustainability strategy. It is also the best transit strategy in the US, compared to building transit new in the South and West, where travelers and developers need to learn how make transit work for them.

So with economic prospects good for the Northeast, this seems like a harmonic convergence, right? Smart growth in a place that was doing it before it was cool. The catch is that this corridor, largely built by the Pennsylvania railroad in the early part of the 20th century, is suffering from years of neglect, at the same time that ridership is growing, to a record level of almost 10 million passengers in 2006. Amtrak and the future of the Northeast were discussed in the 2nd Northeast Climate and Competitiveness Summit , held last week in Baltimore, by the Regional Plan Association (RPA) of New York, New Jersey and Connecticut and the Lincoln Land Institute of Land Policy, based in Boston. At a session on Amtrak and the future of the Northeast Corridor, some of these challenges were brought out. Bob Yaro, president of the RPA, suggested first a goal of an Amtrak that works, followed by improving the Acela high speed service to cut the New York to Washington time from 2 3/4 hours to 2 1/4, and similar improvements on the Boston leg. The challenges are enormous. This is a crowded corridor, shared between Amtrak, eight commuter railroads, and seven freight operations. The political landscape is also crowded, with eight states and the District of Columbia, and all of the localities and special districts. Fares are unnecessarily high, to subsidize losing Amtrak operations elsewhere. Finally, the state of infrastructure neglect is enormous; rail interconnections, power, and bridges, many over 100 years old. The price tag is estimated to be over $5 billion.

Despite the cost and complexity, in a global world of crowded skies and international competitors developing true high speed rail, reinvesting and improving the Northeast corridor should be a no brainer. Most of the U.S.'s air traffic congestion problems are in this corridor, especially in New York. One participant pointed out the the most delayed flight in the US was from Hartford to Newark, a distance of about 100 miles. Reliable higher speed train service on the Northeast corridor would offer both air travelers and drivers welcome options, and help decongest those two modes. While the U.S. is struggling with how to fix the Northeast corridor, a new route opened in November between London and Paris, the last 20-mile section of a 68-mile, $12 billion stretch that will cut 20 minutes off the trip, at a cost of $12 billion. While rebuilding and improving the Northeast corridor is complex, it does not involve tunneling under the English Channel. A near term goal of cutting 1/2 hour off New York to Washington travel times is good, but seems unnecessarily conservative to me. That is an average operating speed of 100 mph. We can do better.

Real Estate Capital Markets Update

Here are the links to the most recent ULI Real Estate Capital Markets Update: HTML | PDF

Responsible Property Investment Forum

3rd Annual Responsible Property Investing (RPI) Forum in Boston at the Fairmont Copley Hotel on March 25-26,

A few things in anticipation of the forum:

• The preliminary agenda, to give you a better sense of the day and half.
• As with our past convenings, this will be a participatory forum -- the presenters will briefly raise key issues around putting RPI into practice, with the focus then on group discussion and exchange of ideas.
• A reminder: you can book your room at the Fairmont Copley Plaza by calling 617-267-5300 -- ask for the room rate for the Responsible Property Investing Forum, or see the logistical information here: Invitation