The Ground Floor

Monday's Numbers and Noteworthy News

Newsworthy News

Signs of the Times? For as many who say that the capital markets crises is easing or ending or whatever, there is daily evidence that things are not quite that rosy as shoe after shoe continues to drop.  A number of this week’s shoes included the following:

"Americans are mired in a fund: The Conference Board announced on June 24 that its index of consumer confidence for the month sagged to a 16-year low. For an explanation, see the usual suspects -- scarce jobs, sky-high gas prices, sinking home values. The Standard & Poor's/Case-Shiller 20-City house price index fell 15 percent from a year earlier, S & P said on June 24. The Fed stood pat on June 25, noting higher inflation but not signaling plans to raise rates."

"Cuts on the Street: The sound of investment bankers pounding the pavement is getting louder. On June 23, The Wall Street Journal said that Citigroup will crop 10 percent of its investment banking division, roughly 6,500 jobs and the Financial Times said Goldman Sachs would axe 10 percent of its investment bankers."

Fed marks down $1bn in Bear Stearns asset portfolio
The value of Bear Stearns' assets, which were accepted by the Federal Reserve in mid-March to facilitate JPMorgan's takeover of the Wall Street bank, have now declined to $28.9 billon (€18.4bn) in value from the original $30 billion.

UBS confirms facing further write-downs
The Swiss bank, Europe's biggest casualty of the U.S. subprime crisis, confirmed it faced further heavy write-downs on exposures to troubled US credits, meaning second-quarter would be 'at or slightly below' break-even.

Monday's Numbers and Noteworthy News

Newsworthy News

A Sign of the Times? For as many who say that the capital markets crises is easing or ending or whatever, there is daily evidence that things are not quite that rosy as shoe after shoe continues to drop.

The Federal Reserve, in a move that could facilitate the flow of capital to cash-strapped banks, is considering steps to make it easier for private-equity firms and others to invest in banks, according to regulators and other people familiar with the matter. The central bank is also expected to offer more
clarity about what exactly outside investors can and can't do when they want to acquire sizable stakes in financial institutions but avoid direct regulatory supervision.

Wachovia liquidates mortgage-centric fund by 50%
Wachovia has liquidated its mortgage-centric Ultra Short Opportunities Fund to the tune of $403 million (€259m), less than half the fund's value six months ago.

Commercial property market may suffer 30% cut
Global investment will decline to about $500 billion, with the Asia-Pacific region  expected to take a higher share at the expense of the U.K. and U.S. markets, says survey.

Writedown fears hit smaller US banks
Shares in U.S. regional banks tumbled, marking a third day of losses for the sector on concern that lenders may be forced to take further writedowns and dilute shareholders with new capital.

Hedge fund liquidation touches new high amid credit squeeze
The number of hedge funds forced into liquidation soared to 170 during the first quarter, 23 percent higher than the same period last year, underlining the aftereffects of the credit crunch, Hedge Fund Research reported on Thursday.

Crittenden warns of further Citigroup writedowns
Gary Crittenden, Citigroup’s chief financial officer, on Thursday warned investors that the U.S. bank will unveil a fresh round of "substantial" mortgage-related writedowns during its second-quarter results.

ULI Real Estate Capital Markets Update

The most recent issue of ULI's Real Estate Capital Markets Update is available, as follows: PDF | HTML

Monday's Numbers and Noteworthy News

Newsworthy News

A Sign of the Times? For as many who say that the capital markets crises is easing or ending or whatever, there is daily evidence that things are not quite that rosy as shoe after shoe drops.

Goldman Sachs report: Banks may need an additional $65 billion
Mounting losses from a global credit crisis that will not peak until 2009 could force U.S. banks to seek as much as $65 billion in additional capital, Goldman Sachs & Co. analysts said Tuesday. The additional capital comes after banks have already secured $120 billion. "Weaker banks are unlikely to benefit from consolidation as bank deals always slow when credit is deteriorating and larger banks are hamstrung by their own problem assets as well as accounting requirements," the analysts added.

Citigroup note points to $400 Billion capital deficit at European banks
European banks have a $400 billion (€259.8bn) hole on their balance sheets in spite of a record-breaking week in fundraising from rights issues, Citigroup said in a research note last week.

Hedge fund liquidation touches new high amid credit squeeze
The number of hedge funds forced into liquidation soared to 170 during the first quarter, 23 percent higher than the same period last year, underlining the after effects of the credit crunch, Hedge Fund Research reported on Thursday.

Crittenden warns of further Citigroup write-downs
Gary Crittenden, Citigroup’s chief financial officer, on Thursday warned investors that the U.S. bank will unveil a fresh round of "substantial" mortgage-related write-downs during its second-quarter results.

"What a difference a year makes"

	May 16, 2008	One Year Ago	Change
Prime Rate	5.00%	8.25%	-3.25%
Federal Funds Rate	2.00%	5.25%	-3.25%
3-Month LIBOR	2.70%	5.36%	-2.66%
3-month Treasury	1.89%	4.87%	-2.98%
10-year Treasury	3.85%	4.86%	-1.01%
30-year Treasury	4.58%	5.00%	-0.43%

Monday’s Numbers

Year-to-Date Equity Market Performance:

DJIA⁽¹⁾: -10.72%
S & P 500⁽²⁾: -10.24%
NASDAQ⁽³⁾: -9.28%
Russell 2000⁽⁴⁾: -5.27%
MSCI U.S. REIT⁽⁵⁾: -0.72%

(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 June 22, 2008)

3-month: 1.85%
6-month: 2.22%
2-Year: 2.89%
5-Year: 3.59%
10-Year: 4.17%

Pricing of Various Tranches of Commercial Mortgage-Backed Securities (as of June 18, 2008)

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

AAA; 5 years; +243 basis points
AAA; 10 years; +216 basis points
AA; 10 years; +566 basis points
A; 10 years; +767 basis points
BBB; 10 years; +1466 basis points
BBB-; 10 years; +1766 basis points
BB; 10 years; +2300 basis points
B; 10 years; +2700 basis points

Source: Various Investment Banking firms such as Lehman Brothers, JP Morgan, and Morgan Stanley

Indicated Spreads for Conventional Commercial Mortgages (as of June 4, 2008)

According to the most recent survey of indicated spreads for conventional commercial mortgage loans by Cushman & Wakefield Sonnenblick Goldman, spreads remained generally unchanged. Borrowers in the market are starting to feel the combined impact of wider spreads and increasing Treasury bond yields.

	Commercial Mortgage Rate Spreads for 5-10 Year Fixed-Rate Mortgages
Property Type	<65% LTV	>65% LTV
Multifamily	+200 - 240	+250 - 275
Regional Malls	+225 - 250	+250 - 350
Strip/Power Centers	+250 - 300	+300 - 400
Multi-Tenant Industrial	+250 - 300	+300 - 450
CBD Office	+225 - 325	+300 - 400
Suburban Office	+250 - 350	+350 - 450
Full-Service Hotel	+300 - 400	+350 - 500
Limited-Service Hotel	+300 - 450	+400 - 500
	5-Year Treasury -- 3.41%; 10-Year Treasury -- 4.06%
Source: Cushman & Wakefield Sonnenblick-Goldman, LLC.

 

Quantifying Green Value

As readers are aware, ULI is a member of the Green Building Finance Consortium (GBFC) and has both access to its research, reports, and studies as well as the right to make them available to ULI members via our Web site.

The following link will take you to the Consortium’s recently published report entitled: "Quantifying Green Value -- Assessing the Applicability of the CoStar Studies," which attempts to apply rigorous analysis to the New York-based CoStar Group's studies that have been widely distributed and quoted in the press, all to the overall benefit on the "green" real estate space.

Among the conclusions of the CoStar Study was that LEED-certified commercial property sold for $171 per square foot, or 64 percent more than comparable non-LEED buildings as well as rented for $11.33 per square foot, or 36 percent more than non-LEED certified properties, important and valuable data and conclusions to say the least.

The GBFC’s "report is not meant to be an independent critique on how to interpret and apply the results of the CoStar study, but consistent with the consortium’s mission, an attempt to more broadly educate investors on some of the foundational issues in sustainable property decision making."

We think you will find the report and the analysis contained therein insightful and instructive and we welcome you observations, questions, and comments.

Monday's Numbers and Noteworthy News

Newsworthy News

A Sign of the Times? For as many who say that the capital markets crises is easing or ending or whatever, there is daily evidence that things are not quite that rosy as shoe after shoe drops. The following appeared in The Guardian.

RBS chief warns of persisting credit turmoil.

Royal Bank of Scotland chief Sir Fred Goodwin on Wednesday warned there is no  early end in sight for the credit crunch and economic gloom, admitting the bank  had "tempered its risk appetite."

"What a difference a year makes"

	May 16, 2008	One Year Ago	Change
Prime Rate	5.00%	8.25%	-3.25%
Federal Funds Rate	2.00%	5.25%	-3.25%
3-Month LIBOR	2.70%	5.36%	-2.66%
3-month Treasury	1.89%	4.87%	-2.98%
10-year Treasury	3.85%	4.86%	-1.01%
30-year Treasury	4.58%	5.00%	-0.43%

Monday’s Numbers

Year-to-Date Equity Market Performance:

DJIA⁽¹⁾: -7.20%
S & P 500⁽²⁾: -7.40%
NASDAQ⁽³⁾: -7.50%
Russell 2000⁽⁴⁾: -4.20%
MSCI U.S. REIT⁽⁵⁾: +2.88%

(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 June 14, 2008)

3-month: 1.97%
6-month: 2.29%
2-Year: 3.02%
5-Year: 3.73%
10-Year: 4.26%

Pricing of Various Tranches of Commercial Mortgage-Backed Securities (as of June 11, 2008)

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

AAA; 5 years; +254 basis points
AAA; 10 years; +217 basis points
AA; 10 years; +6.7 basis points
A; 10 years; +767 basis points
BBB; 10 years; +1467 basis points
BBB-; 10 years; +1767 basis points
BB; 10 years; +2300 basis points
B; 10 years; +2700 basis points

Source: Various Investment Banking firms such as Lehman Brothers, JP Morgan, and Morgan Stanley

Indicated Spreads for Conventional Commercial Mortgages (as of June 4, 2008)

According to the most recent survey of indicated spreads for conventional commercial mortgage loans by Cushman & Wakefield Sonnenblick Goldman, spreads remained generally unchanged. Borrowers in the market are starting to feel the combined impact of wider spreads and increasing Treasury bond yields.

	Commercial Mortgage Rate Spreads for 5-10 Year Fixed-Rate Mortgages
Property Type	<65% LTV	>65% LTV
Multifamily	+200 - 240	+250 - 275
Regional Malls	+225 - 250	+250 - 350
Strip/Power Centers	+250 - 300	+300 - 400
Multi-Tenant Industrial	+250 - 300	+300 - 450
CBD Office	+225 - 325	+300 - 400
Suburban Office	+250 - 350	+350 - 450
Full-Service Hotel	+300 - 400	+350 - 500
Limited-Service Hotel	+300 - 450	+400 - 500
	5-Year Treasury -- 3.41%; 10-Year Treasury -- 4.06%
Source: Cushman & Wakefield Sonnenblick-Goldman, LLC.

Commercial/Multifamily Sector Remains Steady

Commercial/multifamily mortgage debt outstanding increased by 1.8 percent to $3.4 trillion recorded by the Federal Reserve was an increase of $60.8 billion from the fourth quarter 2007. An analysis by Washington, D.C.-based Mortgage Bankers Association (MBA) of the Federal Reserve Board Flow of Funds data, found that multifamily mortgage debt outstanding grew to $856 billion, an increase of $18.5 billion or 2.2 percent from the fourth quarter.

Yet delinquency rates on commercial/multifamily mortgages remain low -- up slightly from the fourth quarter of 2007, but finishing the first quarter of 2008 near record lows for most major investor groups.

"Investors continue to increase their holdings of commercial/multifamily mortgages," said Jamie Woodwell, MBA's senior director of Commercial/Multifamily Research. "The global credit crunch meant a net decline in the balance of mortgages held in CMBS, CDO, and other ABS, but banks, thrifts, life insurance companies, Fannie Mae, Freddie Mac, and nearly every other investor group increased their holdings of commercial and multifamily mortgages during the quarter."

P. Sheridan Schechner, managing director of Lehman Brothers in New York City, saud that a new paradigm has formed for investing and lending. Schechner shared his insights on the outlook for real estate capital during a recent ULI member-only webinar: What’s Next for Real Estate: ULI’s Industry Snapshot Takes a Look.

Commercial banks continue to hold the largest share of commercial/multifamily mortgages, $1.43 trillion, or 42 percent of the total. Many of the commercial mortgage loans reported by commercial banks however, are actually "commercial and industrial" loans to which a piece of commercial property has been pledged as collateral.

It is the borrower's business income -- not the income derived from the property's rents and leases -- that drives the underwriting, pricing, and performance of these loans. In May 2007, an MBA Research PolicyNote noted that among the top 10 commercial real estate bank lenders, 48 percent of their aggregate balance of commercial (non-multifamily) real estate loans were related to owner-occupied properties.

MBA analyzed the delinquncy rates for five of the largest commercial/multifamily investor groups: commercial banks and thrifts, commercial mortgage-backed securities (CMBS), life insurance companies, Fannie Mae and Freddie Mac. Together these groups hold more than 80 percent of commercial/multifamily mortgage debt outstanding.

Based on the unpaid principal balance of loans (UPB), delinquency rates for each group at the end of the fourth quarter were as follows:
Of 35,192 commercial/multifamily loans in life company portfolios, with a total unpaid principal balance of $249 billion, only 10 loans with an aggregate UPB of less than $29 million were 60+ days delinquent at the end of the quarter. Of $1.2 trillion of commercial/multifamily loans at FDIC-insured banks and thrifts, only $12 billion was 90+ days delinquent.

Monday's Numbers and Noteworthy News

Newsworthy News

A Sign of the Times? For as many who say that the capital markets crises is easing oe ending or whatever, there is daily evidence that things are not quite that rosy as shoe after shoe drops. The following appeared in the Financial Times Limited.

Apollo company halts cash payouts
By Henny Sender in New York

A fourth company owned by private equity firm Apollo Management has exercised its option to suspend cash payments on part of its debt, taking advantage of one of the most controversial financing techniques of the leveraged buy-out boom. The company, Momentive Performance Materials, the former GE Advanced Materials business, employed a so-called payment-in-kind –- or PIK –- feature. This allows borrowers to pay bondholders with more shares or bonds instead of cash. During the buy-out boom, Standard & Poor’s Leveraged Commentary & Data estimates 43 bond deals were done with a PIK feature. Some analysts suspect, however, that the actual number was higher.

In at least eight of these deals, the borrowers have opted to suspend cash interest payments in the face of economic weakness, a development that is sure to fuel the debate over whether PIKs were a good idea in the first place. The optimistic view is that the PIK feature will make it possible for more companies to avoid default and survive a downturn.

But the obvious downside is that some investors are being paid with paper, increasing their exposure to troubled companies. Other companies with PIK options enabling them to suspend cash payments on their bonds include some of the targets of the leveraged buy-out binge, such as Freescale Semiconductor, HCA and Univision.

Momentive cited rising raw-material costs and reduced domestic demand in making its decision to suspend cash payments, which knocked down the price of its bonds. A person familiar with Apollo's thinking said: "It is an incredibly intelligent thing to do whether you need the cash or not. You can’t get these terms in the market today." Before last summer’s credit market turmoil, private equity firms bought ever larger public companies, using ever greater amounts of debt. Apollo was among the most aggressive private equity firms in taking advantage of the cheap financing that marked the buy-out boom.

Now that the cycle has turned and the price of buy-out debt has fallen, Apollo also has been among the most aggressive firms in buying the discounted debt backing the biggest buy-out deals, having spent more than $10 billion on such loan portfolio purchases. Apollo has been telling its investors it expects a return of 29 percent on such deals.

"Stop the Bitchin': Positive Outlook for Commercial Real Estate Investors"

John Levy, founder of John B. Levy & Company, a real estate investment banking firm founded in 1995, and the originator of the well-known and highly regarded Barron's/John B. Levy & Company National Mortgage Survey, has recored a series of podcasts discussing the current capital market "crises".

The most recent one entitled "Stop the Bitchin': Positive Outlook for Commercial Real Estate Investors" is now available on the company's web site and provides an expert's experienced view of the state of the capital markets and strategies for getting deals done.

We think you will find it well worth your time.

Monday's Numbers and Noteworthy News

Newsworthy News

FDIC head says U.S. bank failures could mount
U.S. banks set aside a record $37.1 billion to cover loan losses in the first quarter, and bank failures could rise in the coming months, the FDIC said. The U.S. bank regulator reported in its quarterly banking profile that provisions against loan losses were more than four times higher in the quarter than last year. As a result, bank earnings fell 46% in the quarter.

Credit default swaps on Lehman and Merrill debt surge
Credit default swaps on the bonds of Lehman Brothers, Merrill Lynch and other big banks and brokerages have surged over the last two weeks, threatening to reach the stress levels seen before the Bear Stearns debacle.

"What a difference a year makes"

	May 16, 2008	One Year Ago	Change
Prime Rate	5.00%	8.25%	-3.25%
Federal Funds Rate	2.00%	5.25%	-3.25%
3-Month LIBOR	2.70%	5.36%	-2.66%
3-month Treasury	1.89%	4.87%	-2.98%
10-year Treasury	3.85%	4.86%	-1.01%
30-year Treasury	4.58%	5.00%	-0.43%

Monday’s Numbers

Year-to-Date Equity Market Performance:

DJIA⁽¹⁾: -4.72%
S & P 500⁽²⁾: -4.63%
NASDAQ⁽³⁾: -4.89%
Russell 2000⁽⁴⁾: -2.35%
MSCI U.S. REIT⁽⁵⁾: 6.45%

(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.

Monday's Numbers and Noteworthy News

Newsworthy News

Recent Headline Stories from “Real Estate Investment SmartBrief”, a daily publication of the National Association of Real Estate Investment Trusts:

ECB president says worst of credit crunch still to come

European Central Bank President Jean-Claude Trichet warned that the economy is in for a "very significant market correction" and stressed that the worst of the ongoing credit crunch is still ahead. Trichet also said striving to restrain inflation through interest-rate decisions is the most effective way to ensure job security and economic stability. "Price stability and credibility in price stability in the medium term is the best way to have a high level of sustainable growth and sustainable job creation," Trichet told the BBC. Agence France-Presse (5/20) , The Times (London) (5/19) , Financial Times (5/19).

Other Significant Headlines

UBS offloads $22bn mortgage assets to BlackRock at steep discount

UBS on Wednesday said it has closed the sale of troubled mortgage-backed securities to a distressed asset fund led by BlackRock at a discount, indicative of the Swiss banking giant's efforts to reduce risky positions.

UBS lends $11bn to offload debt to BlackRock

UBS today took a critical move to offload US residential mortgage-backed securities holdings, on which it has written down billions of dollars, lending over $11bn (€7.1bn) to help finance a distressed fund's purchase of $15bn of debt from the Swiss bank.

ULI's Real Estate Capital Markets Update

The following are the links to the most recent issue (Volume 10, Number 10) of ULI's Real Estate Capital Markets Update: PDF | HTML

Monday's Numbers and Noteworthy News

Recent Headline Stories from “Real Estate Investment SmartBrief”, a daily publication of the National Association of Real Estate Investment Trusts:

Economists dial back recession rhetoric

An increasing number of economists have started tempering their talk about a recession in the U.S., citing improvements in the stock and credit markets, policy responses and better-than-anticipated economic reports. "A couple months ago it seemed like we were on the abyss," said Jay Bryson, a global economist with Wachovia. "Things have changed. ...The numbers we've seen recently haven't been as bad as we were led to believe just a few months ago." Numerous warning signs remain, however.

Bernanke cautions that credit crisis isn't over

The credit crisis is not over and it "is likely to take some time" before financial markets return to normal, Federal Reserve Chairman Ben Bernanke said. His comments Tuesday led stocks to rise, bonds to sell off sharply, and rate futures markets to start pricing in prospects for higher interest rates by year-end. His comments highlighted the Fed's efforts to keep the U.S. economy out of a deep slump. Meanwhile, speeches by other Fed officials noted the fear that rising energy prices would stoke inflation.

"What a difference a year makes"

	May 16, 2008	One Year Ago	Change
Prime Rate	5.00%	8.25%	-3.25%
Federal Funds Rate	2.00%	5.25%	-3.25%
3-Month LIBOR	2.70%	5.36%	-2.66%
3-month Treasury	1.89%	4.87%	-2.98%
10-year Treasury	3.85%	4.86%	-1.01%
30-year Treasury	4.58%	5.00%	-0.43%

Monday’s Numbers

Year-to-Date Equity Market Performance:

DJIA⁽¹⁾: -2.10%
S & P 500⁽²⁾: -2.95%
NASDAQ⁽³⁾: -4.65%
Russell 2000⁽⁴⁾: -3.26%
MSCI U.S. REIT⁽⁵⁾: 9.42%

(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 May 17, 2008)

3-month: 1.84%
6-month: 1.90%
2-Year: 2.45%
5-Year: 3.11%
10-Year: 3.85%

Pricing of Various Tranches of Commercial Mortgage-Backed Securities (as of March 12, 2008)

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

AAA; 5 years; +248 basis points
AAA; 10 years; +220 basis points
AA; 10 years; +637 basis points
A; 10 years; +837 basis points
BBB; 10 years; +1487 basis points
BBB-; 10 years; +1787 basis points
BB; 10 years; +2300 basis points
B; 10 years; +2700 basis points

Source: Various Investment Banking firms such as Lehman Brothers, JP Morgan, and Morgan Stanley

Indicated Spreads for Conventional Commercial Mortgages (as of April 30, 2008)

According to the most recent survey of indicated spreads for conventional commercial mortgage loans by Cushman & Wakefield Sonnenblick Goldman, spreads remained generally unchanged with a modest amount (25 basis points) of widening here and there. However, overall cost to borrowers spiked in the most recent survey due to the widening in spreads of 5-year Treasury bonds (+46 basis points in two weeks) and 10-year Treasury bonds (26 basis points in two weeks).

	Commercial Mortgage Rate Spreads for 5-10 Year Fixed-Rate Mortgages
Property Type	<65% LTV	>65% LTV
Multifamily	+230 - 260	+250 - 300
Regional Malls	+225	+250 - 350
Strip/Power Centers	+250 - 300	+300 - 450
Multi-Tenant Industrial	+250 - 300	+300 - 500
CBD Office	+225 - 325	+325 - 450
Suburban Office	+250 - 350	+350 - 500
Full-Service Hotel	+300 - 400	+350 - 500
Limited-Service Hotel	+300 - 450	+400 - 500
	5-Year Treasury -- 3.14%; 10-Year Treasury -- 3.86%
Source: Cushman & Wakefield Sonnenblick-Goldman, LLC.

Multifamily Strong, Retail Weak, Jones Lang LaSalle Reports

GlobeSt.com's Ryan Clark reported that poor Q1 reports and economic woes have dotted the landscape of a struggling economy in 2008. A stand out among other sectors, the multifamily sector perseveres in the minds and opinions of real estate professionals, while retail stumbles. Clark reported, the Chicago-based financial and professional services firm, Jones Lang LaSalle, surveyed 80 nationwide property owners, development firms and professional services firm/consultants attending the Urban Land Institute's Spring Council Forum in Dallas. There were positive and negative predictions in all sectors, but the multifamily was where most of the confidence lay, and retail had the least, Clark said.

The multifamily sector lead the "best optional" sector with 52 percent of respondents who predicted movement from zero to 30 percent over the last year. An optimistic 16 percent of respondents think multifamily investments will "outperform the previous year at 75 percent or more." Those that felt multifamily investments will fall zero to 10 percent totaled 22 percent, while no one thought it would fall by 20 percent or higher.

Retail received the most negative reviews with 44 percent of those surveyed who said it will underperform in 2008 from zero to 20 percent. Another 16 percent said retail would underperform by 20 percent or more. Although a few optimistic respondents (12 percent) said retail will secure a performance premium of 75 percent or more than last year.

According to Clark, survey respondents gave a moderate review for industrial with 13 percent saying it will outperform 2007 by 75 percent or more and 15 percent saying it will underperform by 10 percent or more. While the majority of respondents, at 33 percent, predicted a zero to 10 performance underperformance for industrial. The office sector recieved a mixed review with 42 percent of respondents predicting that it will underperform from zero to 20 percent; and 30 percent who said it would bring "a performance premium of zero to 30 percent". Related to 2007, 14 percent said they think office "will outperform at 50 percent or more".

"This survey indicates what many in the industry have been feeling--the market is holding steady," Minter said.

Monday's Numbers and Noteworthy News

Indicated Spreads for Conventional Commercial Mortgages (as of April 30, 2008)

According to the most recent survey of indicated spreads for conventional commercial mortgage loans by Cushman & Wakefield Sonnenblick Goldman, spreads remained generally unchanged with a modest amount (25 basis points) of widening here and there. However, overall cost to borrowers spiked in the most recent survey due to the widening in spreads of 5-year Treasury bonds (+46 basis points in two weeks) and 10-year Treasury bonds (26 basis points in two weeks).

	Commercial Mortgage Rate Spreads for 5-10 Year Fixed-Rate Mortgages
Property Type	<65% LTV	>65% LTV
Multifamily	+230 - 260	+250 - 300
Regional Malls	+225	+250 - 350
Strip/Power Centers	+250 - 300	+300 - 450
Multi-Tenant Industrial	+250 - 300	+300 - 500
CBD Office	+225 - 325	+325 - 450
Suburban Office	+250 - 350	+350 - 500
Full-Service Hotel	+300 - 400	+350 - 500
Limited-Service Hotel	+300 - 450	+400 - 500
	5-Year treasury -- 3.14%; 10-Year Treasury -- 3.86%
Source: Cushman & Wakefield Sonnenblick-Goldman, LLC.

"What a difference a year makes"

	April 30, 2008	One Year Ago	Change
Prime Rate	5.00%	8.25%	-3.25%
Federal Funds Rate	2.00%	5.25%	-3.25%
3-Month LIBOR	2.87%	5.36%	-2.49%
3-month Treasury	1.45%	4.86%	-3.41%
10-year Treasury	3.80%	4.67%	-0.87%
30-year Treasury	4.53%	4.84%	-0.31%

Monday’s Numbers

Year-to-Date Equity Market Performance:

DJIA⁽¹⁾: -3.91%
S & P 500⁽²⁾: -5.45%
NASDAQ⁽³⁾: -7.80%
Russell 2000⁽⁴⁾: -6.01%
MSCI U.S. REIT⁽⁵⁾: 5.33%

(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 May 10, 2008)

3-month: 1.68%
6-month: 1.74%
2-Year: 2.24%
5-Year: 2.97%
10-Year: 3.77%

Pricing of Various Tranches of Commercial Mortgage-Backed Securities (as of March 12, 2008)

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

AAA; 5 years; +253 basis points
AAA; 10 years; +231 basis points
AA; 10 years; +661 basis points
A; 10 years; +681 basis points
BBB; 10 years; +1511 basis points
BBB-; 10 years; +1811 basis points
BB; 10 years; +2100 basis points
B; 10 years; +2500 basis points

Source: Various Investment Banking firms such as Lehman Brothers, JP Morgan, and Morgan Stanley

The Economy: Lots of Speculation, Very Few Answers

This post was written for The Ground Floor by Trisha Riggs communications director at the Urban Land Institute, from the "Spring Council Forum" in Dallas.

The only certainty for the economy is uncertainty -- which could mean an extended period of rocky times for the U. S. real estate industry. That’s the message being delivered in numerous meetings and real estate sessions at ULI’s spring council forum this week in Dallas. As a result, real estate professionals need to be prepared for “rain or shine,” according to one industry analyst.

Some observations from one panel:

Not so bright: 2008 and 2009 will be slow for most sectors of real estate, as the ramifications of the housing market collapse work through the rest of the industry

Not so bright: Consumer spending will continue to drop, reflecting the loss of confidence due to home price declines and equity losses. Retailers are responding by cutting back drastically on expansions.

Could be worse: Commercial vacancies are rising, but are still in the healthy range. New supply in all categories is balanced, with construction at less than 2 percent of existing inventory.

A view from Europe: The farther West one moves (as in closer to the U.S.),  the worse the economy in each country seems. The farther East, the better it seems. Still, many overseas investors consider the U.S. economy to be resilient, all things considered, and the real estate industry ripe for investment (due to the weak dollar)

Some good news: Job losses may not be too dramatic, because job growth did not soar during the recent economic boom. Minimal losses means a quicker return to job gains, which is key to an economic turnaround.   

Some advice for those looking to buy: Focus on quality assets. The yield for quality real estate is still better than that for other assets. "Quality wins," concluded a panelist.

Real Estate Capital Markets Update

The most recent edition of ULI's Real Estate Capital markets Update is available by clicking one of the following links: HTML | PDF.

Monday's Numbers and Noteworthy News

Newsworthy News

Signs of the times, courtesy of Commercial Mortgage Alert:

"Prudential [Mortgage Capital] Pulls Plug on CMBS Operation;" say it will no longer write loans for securitization.

"Centerline Lays Off 8% of staff;" the B-piece buyer and lender, has laid off 8% of its workforce while certain senior executives have taken pay cuts.

CMBS Year-to-Date Issuance:

U.S.  $9.9 billion (versus $81.0 billion in 2007)
Non-U.S. $5.3 billion (versus $25.2 billion in 2007)

Total  $15.2 billion (versus $106.2 billion in 2007)

"What a difference a year makes"

	April 30, 2008	One Year Ago	Change
Prime Rate	5.00%	8.25%	-3.25%
Federal Funds Rate	2.00%	5.25%	-3.25%
3-Month LIBOR	2.87%	5.36%	-2.49%
3-month Treasury	1.45%	4.86%	-3.41%
10-year Treasury	3.80%	4.67%	-0.87%
30-year Treasury	4.53%	4.84%	-0.31%

Monday’s Numbers

Year-to-Date Equity Market Performance:

DJIA⁽¹⁾: -1.56%
S & P 500⁽²⁾: -3.71%
NASDAQ⁽³⁾: -6.61%
Russell 2000⁽⁴⁾: -5.26%
MSCI U.S. REIT⁽⁵⁾: -9.12%

(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 22, 2008)

3-month: 1.50%
6-month: 1.68%
2-Year: 2.45%
5-Year: 3.18%
10-Year: 3.86%

Pricing of Various Tranches of Commercial Mortgage-Backed Securities (as of March 12, 2008)

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

AAA; 5 years; +272 basis points
AAA; 10 years; +244 basis points
AA; 10 years; +662 basis points
A; 10 years; +862 basis points
BBB; 10 years; +1512basis points
BBB-; 10 years; +1812 basis points
BB; 10 years; +2100 basis points
B; 10 years; +2500 basis points

Source: Various Investment Banking firms such as Lehman Brothers, JP Morgan, and Morgan Stanley

Monday's Numbers and Noteworthy News

Newsworthy News

Headline stories from the coming Monday’s edition of Real Estate Finance & Investment sort of summarize where the world is today:

"Seller Financing Emerges in New York" -- In recent weeks, sellers in New York have been offering would be buyers a helping hand.

"SL Green: Our Rents May Drop 10%" -- SL Green Realty Corp., New York's largest office landlord, said that the company could see a 10 percent to 15 percent drop in net effective rents over the next 12 to 18 months, mostly due to financial services firms that have dropped out of the hunt for space.

How much have spreads widened?

The following chart details the increase in spreads required to sell various tranches of commercial mortgage-backed securities between June 19, 2007 (well before the onslaught of the current capital market crises and April 11 to 17, 2008, the date the most recent two CMBS deals priced:

Spreads to Interest Rate Swaps (in Basis Points)
Credit Rating	AAA (5 Year)	AAA (10 Year)	A (10 year)	BBB (10 Year)	BBB- (10 Year)
06/19/07	+22	+27	+62	+135	+210
04/11-17/08	+280	+190	+800	+1,500	+1,800
	+258	+163	+738	+1,365	+1590

And not withstanding the dramatic increase in spreads, inventories of unsold CMBS remain high!

Monday's Numbers and Noteworthy News

Newsworthy News

WEBINAR REMINDER: "What's Next for the Real Estate Capital Markets:  ULI's Industry Experts Take a Look"

Join Steve Blank and Joseph Azrack, president and CEO of Citigroup Property Investors, for a members-only Webinar, as they discuss the current and future prospects for the real estate capital markets on Monday, April 28, 2008 2:00 PM - 2:30 PM EDT.

Need instructions on logging on? Got a question you’d like the answer to? If so, send it to blank@uli.org.

Interest rates increased and trading spreads for commercial mortgage-backed securities (CMBS) narrowed. Interesting news, but neither impacted the availability or cost of securitized or conventional mortgage financing.

Speaking about capitulation, analysts are now predicting 2008's CMBS issuance will equal $25 billion, 89 percent less than 2007's. This bleak forecast reflects the fact that there is nothing in the pipeline and apparently little prospects of anyone taking anything into inventory while they wait for the market to clear.

And while we are talking about the CMBS market, a recent report from Fitch’s noted that delinquency rates continued to inch higher, reaching 0.33 percent of outstanding balances as of March 31. This represents the third month in a row that delinquency rates have increased. Overall, Fitch expects the delinquency rate to double or even triple this year, still below the high-water mark.

Real Estate Capital Markets Update

We have posted the next edition of ULI's Real Estate Capital Markets Update to the Web site. The PDF and HTML links are featured below: PDF | HTML

Monday's Numbers and Noteworthy News

It was sort of a dull week…spreads remained wide, activity remained muted…nobody closed up shop or stopped redemptions. The only news was the non-news that Goldman Sachs, Morgan Stanley, and Lehman Brothers still had billions of Level 3 -- hard to value assets on their balance sheets.

"What a difference a year makes"

	March 28, 2008	One Year Ago	Change
Prime Rate	5.25%	8.25%	-3.00%
Federal Funds Rate	2.25%	5.25%	-3.00%
3-Month LIBOR	2.67%	5.35%	-2.68%
3-month Treasury	1.35%	5.05%	-3.70%
10-year Treasury	3.50%	4.60%	-1.10%
30-year Treasury	4.33%	4.80%	-0.47%

Monday’s Numbers

Year-to-Date Equity Market Performance:

DJIA⁽¹⁾: -7.80%
S & P 500⁽²⁾: -9.23%
NASDAQ⁽³⁾: -10.17%
Russell 2000⁽⁴⁾: -10.17%
MSCI U.S. REIT⁽⁵⁾: 2.46%

(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 22, 2008)

3-month: 1.19%
6-month: 1.39%
2-Year: 1.74%
5-Year: 2.57%
10-Year: 3.47%

Pricing of Various Tranches of Commercial Mortgage-Backed Securities (as of March 12, 2008)

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

AAA; 5 years; +401 basis points
AAA; 10 years; +354 basis points
AA; 10 years; +890 basis points
A; 10 years; +1165 basis points
BBB; 10 years; +1565 basis points
BBB-; 10 years; +1865 basis points
BB; 10 years; +2250 basis points
B; 10 years; +2550 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	+225 - 250	+240 - 275
Regional Malls	+225	+250 - 350
Strip/Power Centers	+225 - 250	+250 - 450
Multi-Tenant Industrial	+250 - 300	+250 - 300
CBD Office	+250 - 300	+350 - 500
Suburban Office	+250 - 300	+350 - 500
Full-Service Hotel	+300 - 400	+350 - 500
Limited-Service Hotel	+300 - 400	+350 - 500
Source: Cushman & Wakefield Sonnenblick-Goldman, LLC.

Monday's Numbers and Newsworth News

Equity REITs are finally in positive territory for 2008!

Total Returns

	March 2008	YTD	Dividend Yield
Industrial	+8.78%	-4.79%	4.19%
Office	+1.90%	-4.04%	5.09%
Office/Industrial	+3.15%	-1.95%	7.72%
Shopping Centers	+11.07%	+4.94%	4.77%
Regional Malls	+9.22%	+2.16%	4.65%
Freestanding Retail	+5.55%	-6.42%	5.82%
Multifamily	+6.34%	+11.48%	4.91%
Manufactured Homes	+4.77%	+5.02%	4.55%
Diversified	+2.86%	+0.42%	4.88%
Hospitality	-2.04%	-6.79%	7.16%
Healthcare	+10.49%	+2.47%	5.52%
Self-Storage	+9.82%	+20.23%	3.17%
Specialty	+1.32%	-7.71%	4.37%
Equity REIT Index	+6.23%	-1.40%	4.99%

"What a difference a year makes"

	March 28, 2008	One Year Ago	Change
Prime Rate	5.25%	8.25%	-3.00%
Federal Funds Rate	2.25%	5.25%	-3.00%
3-Month LIBOR	2.67%	5.35%	-2.68%
3-month Treasury	1.35%	5.05%	-3.70%
10-year Treasury	3.33%	4.80%	-1.47%
30-year Treasury	3.50%	4.60%	-0.47%

Monday’s Numbers

Year-to-Date Equity Market Performance:

DJIA⁽¹⁾: -4.94%
S & P 500⁽²⁾: -6.67%
NASDAQ⁽³⁾: -10.61%
Russell 2000⁽⁴⁾: -6.83%
MSCI U.S. REIT⁽⁵⁾: -+6.85%

(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 22, 2008)

3-month: 1.37%
6-month: 1.52%
2-Year: 1.82%
5-Year: 2.62%
10-Year: 3.47%

Pricing of Various Tranches of Commercial Mortgage-Backed Securities (as of March 12, 2008)

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

AAA; 5 years; +405 basis points
AAA; 10 years; +349 basis points
AA; 10 years; +917 basis points
A; 10 years; +1167 basis points
BBB; 10 years; +1567 basis points
BBB-; 10 years; +1867 basis points
BB; 10 years; +2550 basis points
B; 10 years; +2750 basis points

Source: Various Investment Banking firms such as Lehman Brothers, JP Morgan, and Morgan Stanley

Recent Real Estate Capital Markets Surveys

CohenFinancial Survey of Conduit Lenders:

5-Year term: 5-year Treasuries (2.51%) plus 550 basis points, or 8.00% “All-in”

10-Year term: 10-year Treasuries (3.44%) plus 527 basis points, or 8.71% “All-in”

CBRE Capital Markets “Market Watch” (March 12, 2009)

	Spread over Treasuries	Average Coupon Rate
Commercial Mortgage-Backed Securities	395 to 440 Basis Points	7.68%
Conventional Mortgage	250 to 310 Basis Points	6.30%
Government Sponsored Entities	240 to 250 Basis points	5.95%
Floating Rate Mortgage	290 to 365 Basis Points	6.14%
Based upon 10 year, 75% loan-to-value, commercial loan.

Indicated Spreads for Conventional Commercial Mortgages (as of March 13, 2008)

	Commercial Mortgage Rate Spreads for 5-10 Year Fixed-Rate Mortgages
Property Type	<65% LTV	>65% LTV
Multifamily	+200 - 220	+220 - 250
Regional Malls	+225	+250 - 350
Strip/Power Centers	+225	+250 - 350
Multi-Tenant Industrial	+225 - 300	+250 - 400
CBD Office	+225 - 275	+250 - 400
Suburban Office	+225 - 300	+250 - 400
Full-Service Hotel	+300 - 400	+350 - 500
Limited-Service Hotel	+300 - 400	+350 - 500
Source: Cushman & Wakefield Sonnenblick-Goldman, LLC.

Real Estate Capital Markets Update

The following are the links to the most recent issue (March 31, 2008) of ULI's Real Estate Capital Markets Update: HTML | PDF

Monday's Numbers and Newsworthy News

Take-away from the ULI Two-Day "Financing and Investing in Real Estate Workshop":

Commercial Banks are working hard to manage their balance sheets and increase reserves. Many are constrained as to availability of capital to support entire lending platform, not just real estate's. Lending standards are stricter; loans in size require "Club" structures as no one wants to risk too much balance sheet.

Commercial mortgage-securities market remains on "life support" with only 3 or 4 deals completed in 2008 so far. Delinquencies are expected to increase; liquidity remains an issue as issuers remain "hung" with unsold inventory. You can get a quote, but you probably won't like it.

Life insurance companies remain very conservative; allocations are flat to lower compared to 2007; few players are interested in large deals -- may require "clubs" or participants/syndications; AAA-rate CMBS represent a "relative value" alternative to loan origination with "reasonable" current liquidity (and improving future liquidity).

"What a difference a year makes"

	March 28, 2008	One Year Ago	Change
Prime Rate	5.25%	8.25%	-3.00%
Federal Funds Rate	2.25%	5.25%	-3.00%
3-Month LIBOR	2.67%	5.35%	-2.68%
3-month Treasury	1.35%	5.05%	-3.70%
10-year Treasury	3.50%	4.60%	-1.10%
30-year Treasury	4.33%	4.80%	-0.47%

Monday’s Numbers

Year-to-Date Equity Market Performance:

DJIA⁽¹⁾: -7.90%
S & P 500⁽²⁾: -10.43%
NASDAQ⁽³⁾: -14.75%
Russell 2000⁽⁴⁾: -10.82%
MSCI U.S. REIT⁽⁵⁾: 0.49%

(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 29, 2008)

3-month: 1.37%
6-month: 1.51%
2-Year: 1.65%
5-Year: 2.51%
10-Year: 3.44%

Pricing of Various Tranches of Commercial Mortgage-Backed Securities (as of March 26, 2008)

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

AAA; 5 years; +411 basis points
AAA; 10 years; +341 basis points
AA; 10 years; +914 basis points
A; 10 years; +1164 basis points
BBB; 10 years; +1564 basis points
BBB-; 10 years; +1864 basis points
BB; 10 years; +2000 basis points
B; 10 years; +2200 basis points

Source: Various Investment Banking firms such as Lehman Brothers, JP Morgan, and Morgan Stanley

Recent Real Estate Capital Markets Surveys

According to a survey (conducted for ULI's blog) by Cohen Financial, conduits -- if they are actually writing loans -- are writing them at extremely wide spreads. According to the survey, to which only three of five survey participants responded (which itself tells you something about the market), commercial and multifamily mortgage loans were being quoted as follows:

5-Year term: 5-year Treasuries (2.51%) plus 550 basis points, or 8.00% "All-in"

10-Year term: 10-year Treasuries (3.44%) plus 527 basis points, or 8.71% "All-in"

One would surmise they are not writing a lot of tickets.

CBRE Capital Markets "Market Watch" (March 12, 2009)

	Spread over Treasuries	Average Coupon Rate
Commercial Mortgage-Backed Securities	395 to 440 Basis Points	7.68%
Conventional Mortgage	250 to 310 Basis Points	6.30%
Government Sponsored Entities	240 to 250 Basis points	5.95
Floating Rate Mortgage	290 to 365 Basis Points	6.14%
Based upon 10-year, 75% loan-to-value, commercial loan.

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	+200 - 220	+220 - 250
Regional Malls	+225	+250 - 350
Strip/Power Centers	+225	+250 - 350
Multi-Tenant Industrial	+225 - 300	+250 - 400
CBD Office	+225 - 275	+250 - 400
Suburban Office	+225 - 300	+250 - 400
Full-Service Hotel	+300 - 400	+350 - 500
Limited-Service Hotel	+300 - 400	+350 - 500
Source: Cushman & Wakefield Sonnenblick-Goldman, LLC.

Commerical/Multifamily Finance Markets Mixed, Report Says

Washington, D.C.–based Mortgage Bankers Association (MBA) released its Commercial Real Estate/Multifamily Finance Quarterly Data Book for the fourth quarter of 2007.  The Data Book compiles the most up-to-date information on topics of interest to financial investment industry participants and observers.

The fourth quarter edition examines the Commercial/Multifamily Finance Environment in addition to other market factors.

Commercial/Multifamily finance markets for office and retail space showed signs of a slowdown in several Districts, according to comments prepared at the Federal Reserve Bank of Boston and based on information collected on or before February 25, 2008, which summarizes comments received from business and other contacts outside the Federal Reserve and is not a commentary on the views of Federal Reserve officials.

Office vacancies were reported up, and leasing volumes down, in Manhattan, Baltimore, Washington, D.C., Memphis, portions of Maine and Rhode Island, and Las Vegas. Districts indicated that office vacancies held steady in Boston and the Carolinas, but were down in Philadelphia, Minneapolis, and St. Louis Districts; however, contacts in the Boston and Philadelphia districts are experiencing some emerging slack.

Office rents were mixed; however, coming in nearly flat in the greater Boston and Manhattan metro areas. Richmond reported vacancies as flat or down, while Philadelphia reported an increase.

Retail vacancy was reported up in the Minneapolis while retail space demand was described as slow in Chicago. Demand for industrial space was described as either "firm" or "flat" in the districts commenting on that sector.

Sales activity in nonresidential markets was down in the Boston, Dallas, Kansas City, and Chicago Districts, with contacts citing tight credit conditions as a major factor.

Office sales activity remained strong in New York City and San Francisco. Eight of the 12 districts reported that nonresidential construction activity was slow. Meanwhile, the Cleveland, Dallas, and San Francisco districts indicated that construction remained strong.

For more information on the MBA Commercial Real Estate/Multifamily Finance Quarterly Data Book visit http://www.mortgagebankers.org/files/Research/2007fourthquarterdatabook.pdf

Monday’s Numbers and Newsworthy News

Worldwide Issuance of Commercial Mortgage-Backed Securities -- Nil

2008 Year-to-date: U.S. issuance-$5.1 Billion; non-U.S. issuance-$1.0 billion

2007 Year-to-date: U.S. Issuance-$51.9 Billion; non-U.S. issuance-$13.7 Billion

Who Are They Kidding

According to a listing in this week’s Commercial Mortgage Alert, more than 50 -- repeat 50 -- funds have been formed  in recent weeks to purchase whole loans, mezzanine positions, preferred equity positions, distressed equity and debt positions, B-notes, commercial mortgage-backed securities, senior pieces, subordinated pieces, and bridge equity and debt positions.

One has to question the optimism of the various fund managers for projecting that there is going to be that much troubled merchandise available. The capital markets may be in crises with a recession looming, but we are starting the downward slide with solid fundamentals in most markets and product types. The various funds are in the process of rising between $200 million and $1.5 billion each and are projecting returns in the 12% to 20%+ range.

If they turn out to be right, it is going to make the early 1990s look like a cake-walk.

"What a difference a year makes"

	March 22, 2008	One Year Ago	Change
Prime Rate	5.25%	8.25%	-3.00%
Federal Funds Rate	2.25%	5.25%	-3.00%
3-Month LIBOR	2.61%	5.36%	-2.75%
3-month Treasury	0.61%	5.13%	-4.52%
10-year Treasury	3.33%	4.80%	-1.47%
30-year Treasury	4.17%	4.91%	-0.74%

Monday’s Numbers

Year-to-Date Equity Market Performance:

DJIA⁽¹⁾: -8.80%
S & P 500⁽²⁾: -11.10%
NASDAQ⁽³⁾: -16.70%
Russell 2000⁽⁴⁾: -13.30%
MSCI U.S. REIT⁽⁵⁾: -0.01%

(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 22, 2008)

3-month: 0.61%
6-month: 1.19%
2-Year: 1.59%
5-Year: 2.37%
10-Year: 3.33%

Pricing of Various Tranches of Commercial Mortgage-Backed Securities (as of March 12, 2008)

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

AAA; 5 years; +463 basis points
AAA; 10 years; +409 basis points
AA; 10 years; +924 basis points
A; 10 years; +1124 basis points
BBB; 10 years; +1675 basis points
BBB-; 10 years; +1875 basis points
BB; 10 years; +2000 basis points
B; 10 years; +2200 basis points

Source: Various Investment Banking firms such as Lehman Brothers, JP Morgan, and Morgan Stanley

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	+200 - 220	+220 - 250
Regional Malls	+225	+250 - 350
Strip/Power Centers	+225	+250 - 350
Multi-Tenant Industrial	+225 - 300	+250 - 400
CBD Office	+225 - 275	+250 - 400
Suburban Office	+225 - 300	+250 - 400
Full-Service Hotel	+300 - 400	+350 - 500
Limited-Service Hotel	+300 - 400	+350 - 500
Source: Cushman & Wakefield Sonnenblick-Goldman, LLC.

Economic Worries Take Center Stage in Webinar

Two industry experts -- Wharton School Professor Peter Linneman and Rosen Consulting principal Arthur Margon, moderated by ULI senior resident fellow Steve Blank -- addressed many of the worries and fears about the current economic downturn in a webinar yesterday, hosted by ULI. Their analysis? That yes, we are in a challenging time and people should be cautious, but things will eventually get better. View the archived webinar here.

Monday's Numbers and Newsworthy Notes

Newsworthy Notes

What's the Federal Reserve Board Going to Do on March 18th?

All eyes are on the Federal Reserve Board, waiting to see what it will do for an encore after engineering Friday's takeover of Bear Stearns by JP Morgan. Set your alarms for 2:10 p.m. EDT and make sure you have your seat belts tightened because whatever they do, whatever they say, it is going to be a volatile day and second guessed by many.

Don't Feel Sorry For Carlyle

We're not being hard-hearted or gleeful about someone else's troubles. You know the expression: you live by the sword, you die by the sword. As reported in the European edition of the Wall Street Journal on Friday: "...Carlyle Capital would exploit the differences between the interest earned on its investment in mortgage securities and the costs of financing those investments. The secret to making money was borrowing massive sums. Carlyle Capital managed only $670 million in client money, but used borrowings to boost its portfolio of bonds to $21.7 billion, meaning it was 32 times leveraged." If some numbers we did on the back of an envelope are correct, if Carlyle's directional play had worked -- if the yield on its investments had followed the downward yield curve of U.S. Treasury securities -- to the tune of 0.50%, Carlyle would have made about three times its investment. Similarly, if interest rates went the wrong way, or if the prices of its securities portfolio did not follow and align with the yields on Treasuries, Carlyle would suffer huge losses. It appears that Carlyle became mired in the same trap as Long-Term Capital Management did in 1998 when the flight to quality turned into a flight to both quality and liquidity. Carlyle got caught by one of those "Black Swan" events -- totally unexpected and therefore totally devastating. They made a strategic bet, backed with it huge leverage, and suffered the unexpected consequences. In a letter to investors Carlyle Capital management noted: Carlyle Capital "believed this [its strategy] to be a creative and thoughtful approach and one that was time tested in the markets for these types of assets."

"What a difference a year makes"

	March 8, 2008	One Year Ago	Change
Prime Rate	6.00%	8.25%	-2.25%
Federal Funds Rate	3.00%	5.25%	-2.25%
3-Month LIBOR	2.94%	5.36%	-2.42%
3-month Treasury	1.44%	5.13%	-3.69%
10-year Treasury	3.53%	4.80%	-1.27%
30-year Treasury	4.54%	4.91%	-0.37%

Year-to-Date Equity Market Performance

DJIA⁽¹⁾: -9.90%
S & P 500⁽²⁾: -12.27%
NASDAQ⁽³⁾: -16.58%
Russell 2000⁽⁴⁾ : -13.48%
MSCI U.S. REIT⁽⁵⁾: -4.46%

(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 15, 2008)

3-month: 1.16%
6-month: 1.32%
2-Year: 1.48%
5-Year: 2.40%
10-Year: 3.44%

Pricing of Various Tranches of Commercial Mortgage-Backed Securities (as of March 5, 2008)

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

AAA; 5 years; +463 basis points
AAA; 10 years; +409 basis points
AA; 10 years; +924 basis points
A; 10 years; +1124 basis points
BBB; 10 years; +1674 basis points
BBB-; 10 years; +1874 basis points
BB; 10 years ; +2500 basis points
B; 10 years; +2700 basis points

Source: Various Investment Banking firms such as Lehman Brothers, JP Morgan, and Morgan Stanley

Indicated Spreads for Conventional Commercial Mortgages (as of February 24, 2008)

	Commercial Mortgage Rate Spreads for 5-10 Year Fixed-Rate Mortgages
Property Type	<65% LTV	>65% LTV
Multifamily	+180 – 200	+220 – 250
Regional Malls	+225	+250 – 350
Strip/Power Centers	+225	+250 – 350
Multi-Tenant Industrial	+200 – 250	+250 – 400
CBD Office	+200 – 250	+250 – 400
Suburban Office	+200 – 250	+250 – 400
Full-Service Hotel	+250 – 300	+300 – 400
Limited-Service Hotel	+250 – 300	+300 – 400
	5-Year Treasury – 2.81%; 10-Year Treasury – 3.79%
Source: Cushman & Wakefield Sonnenblick-Goldman, LLC.

Collateral Damage: Squeezing Out Affordable Housing

While everyone's attention is focused on market gyrations, credit squeezes and the housing melt down, not to mention the latest sex scandal and—remember—the endless Democratic Presidential campaign, the affordable housing industry is being quietly closed down.  Look at what has happened:

• Low income housing tax credits—the price for these credits has fallen in the past few months from over $1 per dollar of credit to 80 to 82 cents to the dollar—a 20% decline that is making new deals unworkable.  The main reason for this meltdown is what has happened to Fannie Mae and Freddie Mac; their accounting scandals resulting in the new restrictions on their mortgage purchases as well as the decline in housing prices and the mortgage-backed securities markets all have combined to reduce or eliminate their profits.  Thus the biggest market maker for the tax credits, Fannie Mae, has reduced its purchases of credits from over $2 billion in 2006 to $1.1 billion in 2007 and is now reportedly a net seller of credits.  Freddie Mac has also reduced its purchases as well.  The major banks that were also buyers are now struggling with loses and don't need or want credits.  While the new pricing makes credits attractive investments to the corporations that used be in the market for credits, it will take months or years to get them back in as active buyers.

Monday's Numbers and Newsworthy Notes

Newsworthy Notes

What's the Federal Reserve Board Going to Do on March 18th?

The financial futures markets, which had fully priced a 50 basis point cut in the Federal Funds Rate into "their" numbers, are now trading in a range implying (76% chance) a 75 basis point cut. Our sense is that may be a little overly generous thinking on trader's part. 50 basis points gets everyone's attention and still leave the FRB room to maneuver.

Spreads are Wide Enough to Drive a Truck Thru!

But...Treasury yields continue to decline, offsetting the majority of the widening in spreads which have occurred in recent weeks. Commercial mortgage-backed securities trading spreads (and therefore lending spreads) are at their widest, possibly ever, and increasing weekly. Conventional spreads seemed to have widened into the 250 to 300 basis point area for under 65% loan-to-value loans; quotes for loans above 65% LTV (in the 250 to 400 basis point range) are probably more nominal and symbolic than real.

"What a difference a year makes"

	March 8, 2008	One Year Ago	Change
Prime Rate	6.00%	8.25%	-2.25%
Federal Funds Rate	3.00%	5.25%	-2.25%
3-Month LIBOR	2.94%	5.36%	-2.42%
3-month Treasury	1.44%	5.13%	-3.69%
10-year Treasury	3.53%	4.80%	-1.27%
30-year Treasury	4.54%	4.91%	-0.37%

Year-to-Date Equity Market Performance

DJIA⁽¹⁾: -10.34%
S & P 500⁽²⁾: -11.92%
NASDAQ⁽³⁾: -16.68%
Russell 2000⁽⁴⁾: -13.82%
MSCI U.S. REIT⁽⁵⁾: -6.71%

(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 8, 2008)

3-month: 1.44%
6-month: 1.54%
2-Year: 1.52%
5-Year: 2.43%
10-Year: 3.53%

Pricing of Various Tranches of Commercial Mortgage-Backed Securities (as of March 5, 2008)

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

AAA; 5 years; +401 basis points
AAA; 10 years; +369 basis points
AA; 10 years; +778 basis points
A; 10 years; +978 basis points
BBB; 10 years; +1428 basis points
BBB-; 10 years; +1578 basis points
BB; 10 years; +1600 basis points
B; 10 years; +1900 basis points

Indicated Spreads for Conventional Commercial Mortgages (as of February 24, 2008)

	Commercial Mortgage Rate Spreads for 5-10 Year Fixed-Rate Mortgages
Property Type	<65% LTV	>65% LTV
Multifamily	+180 – 200	+220 – 250
Regional Malls	+225	+250 – 350
Strip/Power Centers	+225	+250 – 350
Multi-Tenant Industrial	+200 – 250	+250 – 400
CBD Office	+200 – 250	+250 – 400
Suburban Office	+200 – 250	+250 – 400
Full-Service Hotel	+250 – 300	+300 – 400
Limited-Service Hotel	+250 – 300	+300 – 400
	5-Year Treasury – 2.81%; 10-Year Treasury – 3.79%
Source: Cushman & Wakefield Sonnenblick-Goldman, LLC.

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.

Real Estate Capital Markets Update

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