CM_DisruptionHeader_for landing page

Real Estate is a Compelling Play

January 14, 2021

  • Yield-seeking investors have a unique opportunity in real assets today.
  • The average cap rate for the major asset classes spread (premium) to the BBB yield is a historically wide 3.8 percentage points.
  • This spread peaked at 3.7 percentage points in the third quarter of 2012, before a bull run of investment in the years that followed.
  • The cap rate-to-BBB spread was 1.6 percentage points at the end of 2018.
  • In a yield-starved environment, real estate makes for a compelling play.

BBB Spreads_600px-1


Our last post highlighted the $336.4 billion of equity capital waiting in the wings, so today we explore yield spreads. Real estate is highly appealing in today’s low interest rate world, with a historically wide spread (premium for investing in real estate) between the average cap rate of the four major property types (industrial, multifamily, office, and retail) and the yield of BBB bonds. Real estate investors can earn a 3.8-percentage-point premium over those bond rates, which peaked coming out of the last cycle at 3.7 percentage points before investment volumes soared.





Plenty of Equity Remains on the Sidelines

January 07, 2021

  • $336.4 billion was available to deploy for real estate strategies at the end of 2020, per Preqin. This is a 9% decline from 2019.
  • $188.5 billion was raised in 2020, a 34% decline from 2019. Total funds created were down 42%, but the average fund size rose to a record high $515 million.
  • Opportunistic, value-add, and debt are the top three strategies drawing most of the potential capital (79% of all funds).
  • In 2009, funds were even more heavily skewed to these strategies, drawing 88% of prospective capital.
  • Debt is far more of a focus today than in 2009, attracting a net $43.2 billion more capital.

Equity Dry Powder Chart_600 px

Click below to read more about the debt strategies of this economic cycle.



November Sales Update

December 17, 2020

  • November sales volume totaled $20.8 billion, a 38% decrease month-to-month. Total volume remains down 57% year-over-year.
  • San Francisco ($565.1 million in sales) once again drove office volume in a sluggish month. Total office sales were down 65% from October.
  • Industrial is returning to portfolio sales, showing the evolution of the investment sales market this past year. Total volume came in at $5.6 billion.
  • Multifamily portfolio sales also led the sales market in November. Overall volume was $8.7 billion, down 44% from last month.
  • Retail volume was led by a large grocery-anchored portfolio sale in CA. High-end retail in Beverly Hills and a struggling mall in VA together illustrated market disparities in pricing and performance.
  • Hotel also showed signs of life, with six different $50 million-plus acquisitions. Monthly volume was up 92%.

Visuals November_600 px

Click below to read more about how sale fundamentals have shifted in this cycle.




Numbers and Trends to Watch Going Into 2021

December 10, 2020

Numbers to Watch_visual



As the year winds to a close, there is no shortage of important metrics and trends to monitor into 2021. Below are a dozen that caught our eye in recent weeks:







November Public Market Update

December 3, 2020

  • REIT Chart_Sept-Nov_600pxThe promising clinical results from Pfizer and Moderna have incited a stock market rally, setting new highs in the major U.S. benchmark indices.
  • Stocks more closely tied to a "return to normal" have outperformed from September 4 through November 30.
  • Office in particular stood out, leading all product types since our last analysis from September 4. Office stocks are up 11.8% while retail stocks rose 6.5%, both ahead of the broader stock market performance of the S&P 500 and Dow Industrials.
  • Commercial real estate services firms vastly outperformed, gaining 36.5% on average. Colliers International has posted the second-highest gains among all companies, sectors, and indices.
  • Several non-data-center stocks are back to, or near, their pre-pandemic valuation, including Duke Realty, Alexandria Real Estate Equities, and Prologis, which is up 2.6%.
Fueled by successful trials for a COVID-19 vaccine, the global stock markets have rallied. U.S stocks in particular rose to record numbers — with both the Dow Jones Industrial Average and S&P 500 indices reaching historical highs before slightly decreasing again.
Click below to read more about the shifts in public market indices since our September analysis


October RCA Sales Volumes a Mixed-Bag

November 19, 2020


  • October chart_600 pxOctober sales volume totaled $26.2 billion, a 15% decrease month-to-month. This marks the second-highest monthly total post pandemic.
  • Transactions in the Bay Area drove strong volume in the office sector, supported by a $1 billion life science deal in South San Francisco. Total office sales were up 29% from September.
  • Industrial volume was portfolio-driven, led by two transactions in Boston. Overall volume was down 25% from last month.
  • Multifamily volume was down 7% from the prior month, as portfolio sales in October did not quite match September’s aggregate sales.
  • Retail and hotel sales remain sluggish, with limited total transactions but some thawing. Both unanchored retail centers and well-located hotel properties are moving.

Click below to read more about how office fundamentals have shifted in this cycle.

Office Sublease Continues to Rise

November 12, 2020


office sublease-1200-landing
  • Nationally, 44.2 million SF of sublease space has been added in the past six months.
  • Sublease space is 30 million SF higher than it was at the peak of the Great Financial Crisis. The national sublease availability rate on multi-tenant space is 2.2%.
  • But nearly all top ten markets have a higher sublease rate than that, indicating pressure on the major markets.
  • San Francisco leads with a sublease availability rate of 7.8%. Seattle, Los Angeles, and San Jose/Silicon Valley are all at or above 3%.
  • CBD Class A sublease rental discounts are highest in Houston (49.5%), Seattle (35.9%), and Washington, D.C. (31.8%).


Click below to read more about how office fundamentals have shifted in this cycle.

The U.S. Industrial Sector on Pace for Record Year

November 5, 2020

The U.S. industrial sector continues to perform exceptionally well despite headwinds facing commercial real estate. Robust net absorption, rent growth, construction, and occupancy all remain healthy, fueled by the continued growth of e-commerce and an increase in demand for warehouse and distribution space. E-commerce sales grew 31.8% in Q2 2020 (the most recent data available) from the same time last year and now represent 16.1% of total non-auto retail sales. E-commerce will continue to be a driving force in industrial real estate for the foreseeable future.

New Supply Slide_3Q20

Click below for some of the headline numbers from Q3 2020:

Debt Markets are Alive and Well

October 29, 2020

  • The debt markets are segmented today, with lenders aggressively bidding on deals secured by favored asset types.
  • Agency financing is as aggressive as ever, with achievable rates in the mid-2%-to-low-3% range for full-leverage deals, making it difficult for life companies and banks to compete on multifamily transactions.
  • National banks remain largely on the sidelines, while local and regional banks continue to be strong financing outlets, favoring smaller transactions to limit deal-specific exposure.
  • The CMBS market is open again, with the AAA tranche pricing in the mid-90s-basis-points-above-spreads range — broadly in line with pre-COVID-19 levels.
  • Forbearance remains on a case-by-case basis, property owners are coming back for more assistance, creating a potential second wave.
  • Hierarchy of financing: Multifamily/industrial sectors are highly liquid (1A/1B), life science/lab demand is surging, office is highly dependent on credit, and the retail/hotel market continues to be challenging.

Super Senior CMBS Spreads v2

September RCA Sales Volume Shows Uptick

October 22, 2020
  • Sept 2020 Sales VolumeThe investment sales market is waking up again.

  • Month-to-month volume comparisons were up across all property types in September.

  • Apartment posted the strongest monthly volume ($10.8 billion), followed by industrial ($5.9 billion) and office ($4.6 billion).

  • Month-to-month gains were led by hotel (up 53%), apartment (42%), office (32%), industrial (31%), and retail (11%).


U.S. Office Absorption Posts Negative 33.5 Million SF in Q3

October 15, 2020
  • National office absorption, negative 33.5 million SF in Q3, has surpassed losses at the low point of the Global Financial Crisis (GFC) of negative 25.9 million SF.

  • Losses were almost equal in urban and suburban markets.

  • The 47.1 million SF of negative absorption in the past six months is already more than half the GFC total.

  • Ten markets posted negative absorption of over one million SF.

  • Vacancies increased 70 basis points this quarter, to 12.6%. They peaked at 16.3% in the GFC.

  • Sublease space is at a record 168.8 million SF, 35.5% higher in the past six months.

  • Average Class A asking rents in CBDs fell by 2.9% in Q3; suburban rents were flat.


Northeast Office Q3 Update

October 8, 2020

Disruption2020_RCA-Graph-Image (002)

The Northeast has been one of the hardest-hit and also one of the slowest regions in the country to reopen during the COVID-19 pandemic. This is unsurprisingly having ripple effects on the overall office market. An early read on the third quarter has shown continued vacancy increases and sharp negative absorption across the region. Asking rents, however, have by and large continued to hold. Effective rates are down, as concessions such as free rent, higher tenant improvement allowances or turnkey spaces are more common. The aggregate negative net absorption for Boston, New York, New Jersey, Philadelphia and Washington, D.C./Northern Virginia topped 15.7 million SF in the third quarter. That is the biggest quarterly decline since the post-September 11/tech wreck and is higher than national negative net absorption in the second quarter of 13.6 million SF.


Some More Numbers to Watch

October 1, 2020

Numbers to Watch_visual_SOCIAL

As we did last month, we’re posting a list of numbers and figures worth watching. They touch on the economy and property markets, providing more food for thought as investors wade through the uncharted waters of today’s market.






August RCA Sales Update

September 24, 2020
Visuals August_1200px
  • August sales volume came in at $14 billion, a decrease both of year-over-year by 68% and month-to-month by 20%.

  • Hotels continue to be the worst-performing sector, down 89% in sales volumes year-over-year.

  • Apartments posted a 17% month-over-month increase to $5.5 billion in August, while sales in the office sector decreased by 42%.

  • Transactions should start to pick up, as more and more deals are being launched.




Sublease Space Update

September 17, 2020
  • Sublease space in this cycle will surpass the previous cycle’s peak by a wide margin. This has the potential to significantly affect the trajectory of vacancy and rent.

  • Boston and San Francisco were early leaders in the rise of sublease space, but other markets are catching up.

  • Manhattan added 2.3 million SF of new sublease space in July and August, and Los Angeles, 1.2 million SF in the same months.

  • Houston sublease space grew by six blocks of 50,000 SF-plus in the third quarter-to-date, part of a one million SF increase, while in Dallas, sublease space has grown by two million SF since the end of Q2.

  • Washington, D.C., subleasing has added 900,000 SF in Q3 2020 so far, and Boston, 560,000 SF.

  • Sublease inventory in Chicago’s CBD is at levels not seen in over 10 years. Atlanta added 763,000 SF in July and August.

  • We expect sublease space to continue to rise for the next 6–12 months as tenants assess their space needs.

Nationwide Sublease Surge

Public Market Update

September 10, 2020
  • REIT stock performance has significantly lagged behind the broader stock market indices, compared to both the pre-pandemic stock market peak and our last analysis in May.

  • Office is the weakest-performing sector of all, while in May, retail was.

  • Data centers have performed the best, rivaling the expansion of the NASDAQ index since February. Industrial has been the best-performing large sector in that time frame.

  • Since our last analysis, life science/healthcare has posted the strongest gains, followed by retail.

  • Residential is the only sector in which growth has declined since late May.

  • Alexandria Real Estate Equities, which focuses on only pure life science, has nearly returned to its pre-pandemic high.

  • Real estate services companies have rebounded of late, led by Colliers International.

Value Change_Feb to Sep_social Value Change_May to Sep_social
Sources: Yahoo! Finance and Google Finance


Consensus Economics August Forecast

September 3, 2020
  • US GDP 2001-2021_% growth

    The Consensus Forecast for August predicts a 5.2% annual decline in real GDP in 2020, followed by positive growth to 4.0% in 2021.These predicted rates are a 40 basis point difference from the June report (5.2% vs. 5.6%, and 4.0% vs. 4.4%).

  • As both the medical and business communities obtain greater clarity about the impacts of the pandemic, we see fewer consensus fluctuations month-over-month.
  • While all forecasts project negative growth in 2020, it varies widely in projections of the different forecasting groups.

  • Citigroup remains the most bullish of all forecasters for 2020, projecting just a 3.3% annual decline, while on the other end of the spectrum, the National Association of Home Builders predicts a 6.8% decline for 2020.

  • A “V-shaped” recovery is still the aggregate base case scenario.

  • Third quarter GDP forecasts have held steady at an expectation of a rebound of 20.7%.




July RCA Sales Update

August 27, 2020
  • Visual July_1200px

    Volume was down $4.4 billion month-over-month, preventing a second consecutive month of gains. All asset types saw a monthly decline in volume.

  • Overall sales volumes were down 69% from last July, with outsized declines for hotel, retail, and apartment properties.
  • Amazon fulfillment centers continue to be among the most liquid assets anywhere.

  • Terminated transactions have increased, headlined by a Vornado retail portfolio in New York.

  • We sense that sentiment is continuing to slowly improve in the transaction markets, thanks to plentiful capital and a fully functional debt market.

  • Month-to-month volume comparisons should start to pick up, as more deals have launched this summer.




Numbers to Watch

August 20, 2020
Numbers to Watch_visual_SOCIAL

At Colliers we understand the interconnectedness of data and the importance of considering macroeconomic trends and anecdotes in making real estate decisions. With that in mind, we’ve identified several numbers worth watching.






Industrial Activity Maintains Momentum

August 13, 2020

Despite facing headwinds of record unemployment rates, negative GDP growth, and rising cases of COVID-19 across the country, the U.S. industrial market is poised to maintain its footing with low vacancies and high asking rents across most markets. Overall net absorption remained positive, and new supply is primed for a record year in 2020. The continued growth in e-commerce sales in the U.S. is a top demand driver, fueling demand for warehouse and distribution space amid the global pandemic, particularly from Amazon. Quarterly U.S. industrial investment sales volume, however, dropped approximately 50% from this time last year, yet prices held firm. Despite the drop in transactions, industrial is the only property type earning positive year-over-year growth.
Here are some of the headline numbers from Q2 2020:

  • The U.S. industrial vacancy rate rose for the fourth consecutive quarter to 5.5%.
  • Net absorption stayed positive, with occupancy gains of 104.5 million SF year-to-date, or 6.2% higher than this time a year ago.
  • Low vacancy in both core and secondary markets and new, higher-quality space drove average asking rents to a record $6.29/SF for warehouse/distribution space, or 1.6% growth, in Q2 2020.
  • Despite quarterly investment sales volume softening, year-to-date transactions totaled $44.5 billion — up 17.2% — due to a very strong first quarter. In the second quarter, transactions fell to 866, compared to an average quarter of 1,900.
  • New industrial supply through Q2 totaled 171.9 million SF, up 33.5% from 128.8 million SF last year.
  • Development remains heavy, with 313.6 million SF underway at the close of the quarter, nearly equal to the 312 million SF at midyear 2019.

Most Quarterly New Supply Since Q4 2018

New Construction Supply chart

Hotels Capital Markets Trends

August 6, 2020

The COVID-19 pandemic has brought unprecedented disruption to the U.S. lodging sector. Travel restrictions, quarantines and global air travel pullback have rocked hotel fundamentals. How that disruption may affect both recovery and hotel investors is the focus of today’s post.

COVID-19 Pandemic DisruptionHotel Capital Markets_Social Image

  • RevPAR fell 80%. Occupancies bottomed out at 22% in early April; rebounding to 48.1% in late July per STR.

  • Owners/investors have tried to preserve liquidity, including temporary and outright closures, furloughs/layoffs, PPP loan applications, drawdowns on FFE reserve, negotiating forbearance on mortgages and deferring CAPEX and brand-mandated improvements.

  • Short-term rentals — Airbnb and the like — are recovering more quickly than hotels, due to increased demand for “staycations” and a need for local short-term housing. Short-term rentals will remain a formidable lodging player, and their 10% U.S. market share is expected to grow.



Office Fundamentals Weaken

July 30, 2020
  • US Market Absorption_2004 to Q2 2020The U.S. office vacancy rate rose by 40 basis points to 11.9%, the highest quarterly increase in vacancy since Q1 2010.

  • U.S. office absorption fell into negative territory for the first time since Q1 2010 at -13.6 million SF. Office absorption declined by 86% year-over-year.

  • Two-thirds of office markets recorded negative absorption in the second quarter, led by a combined negative 6.1 million SF in New York, Boston, and the Bay Area.

  • Rents are, for the most part, holding firm, but declines look to be in the offing. Any growth is increasingly limited and found in markets such as Austin, Nashville, Philadelphia, and South Florida.

  • The amount of office space under construction in the U.S. rose marginally to 156.7 million SF. Construction volume in the previous cycle peaked at 125.2 million SF in Q2 2008.

  • Sales volume totaled $11 billion, down from $29.4 billion in the first quarter. The year-over-year sales total is down by 71.4%.




June Sales Data - Signs of Improvement?

July 23, 2020
  • Visual June_social image

    June sales volumes were off 73% year-over-year, outpacing the declines of April and May.

  • RCA has noted an increase in distress, led by hotel and retail.

  • However, sales volume was up 12% month-over-month to $14.9 billion.

  • Industrial had the “best” performance, declining 49% over the past year, though monthly volume was up $1 billion.

  • Office declined 79% (CBD sales were down 83%, suburban 76%), apartment 77%, June to June. Office saw monthly sales increases, apartment was flat.

  • Retail and hotel remain challenged, off 77% and 88%, respectively. Hotel volume surged in June off of very low levels.

  • July may be the bottom of the market – deals are starting to come to market, but we expect the recovery to be choppy.




Unlocked Insights Part 3 - Cross-Border Capital

July 16, 2020

As part of Colliers’ institutional cross-border platform, we regularly collaborate and share information with a closely connected group of global capital markets leaders in the U.K., South Korea, Singapore, Japan, China, Germany and Australia, among others. Our global presence in these and some 60+ other countries provides us with vast market intelligence and relationships across the world.

Speech Bubbles_cross-border capital_narrow

Our team has produced these key insights on cross-border capital sources:


[ 1 ]

International investors remain focused on core assets.

[ 2 ]

Macro trends point to continued cross-border capital flow.

[ 3 ]

Deals are getting done.


Click below to find the complete list of takeaways and recurrent themes.




Unlocked Insights Part 2 - Property Type Takeaways

July 9, 2020

Following up on our earlier post on Macro Takeaways, today we focus on property type insights from our team of investment professionals. While the overarching positive trends within the debt markets are at play across asset types, unique opportunities are emerging within those specialties.

Speech Bubbles_property type takeaways

Click below to find the complete list of takeaways and recurrent themes.




Unlocked Insights Part 1 - Macro Takeaways

July 2, 2020

Colliers Capital Markets advisors have their fingers on the pulse of the market. From conversations with buyers, sellers, capital sources, occupiers and other market participants, they are connecting the dots. We sat down with several of our advisors to better understand the trends they’re hearing about and seeing in the market today.

Speech Bubbles_macro takeaways

Click below to find the complete list of takeaways and recurrent themes.




May RCA Sales Volumes

June 25, 2020
  • May sales volume was down 79% year over year, to $9.8 billion.

  • Industrial was the “best” performing, down by 70%.

  • Office volumes fell by 82%, and CPPI pricing indicates a slowing in value growth, up by just 1.6%.

  • Apartment led the market with $3.1 billion in volume, which was 81% lower. Pricing, though, is up 9.3%, the best growth for all asset types.

  • Retail dropped 83% and hotel by 95%. Hotel is the lone asset type posting value declines.

  • Safety is apparent in many top transactions, with investors seeking new assets, such as those with long-term leases in place or strong anchors, such as grocery stores.

  • Expect June figures to be even worse.
May RCA Data_Volume Comparison May RCA Data_Largest Sales




Investor Sentiment Survey Second Edition

June 23, 2020

Colliers’ second Investor Sentiment Survey, now complete, allows us to identify some emerging changes in investor sentiment. Below are some of the most interesting differences between our surveys, which indicate more optimism now as cities and states across the country are reopening their economies in some way.

Investors are more optimistic.

Investor Sentiment infographic_combined_FINAL

Office investors are less bearish than in the first survey. Extreme changes seem less likely now.

Industrial investors are also more bullish — optimism is apparent.

Retail investors are still pessimistic.

Multifamily investors are more optimistic.




Consensus Economic Forecasts

June 18, 2020
  • The latest Consensus Forecasts have been released – they are calling for a “v” shaped recovery.

  • This report is dated June 8th, which means many forecasts do not reflect the May jobs report and the improving sentiment as a result.

  • Month-to-month, the outlook for 2020 has become more sanguine, with a 5.6% GDP decline as the consensus. Citigroup is the most bullish, with a 3.3% decline predicted, while Georgia State University is the most bearish, expecting a 9.5% annual decline.

  • 2021 on the other hand is more optimistic, with the consensus calling for a 4.4% GDP gain. Georgia State is the most bearish here as well, with a 0.4% increase in GDP forecast, while CIBC is the most bullish, expecting GDP to expand 7.1%.

  • Overall, the second quarter of 2020 is predicted to post an annualized decline of 35.7%, while the third quarter is expected to rebound by 20.7%. This is a sharp, yet short retraction.

  • Strong intervention from the Fed and Government have propped up balance sheets and should, in turn, support commercial real estate. The wildcard is the future path of the pandemic, which is unknowable.

U.S. GDP Forecasts-Q1 19-Q4 21 _2000px U.S. GDP Forecasts-2020_2000px U.S. GDP Forecasts-2021_2000px



MBA Mortgage Performance Survey

June 11, 2020

The Mortgage Bankers Association recently surveyed mortgage performance between April 20 and May 20, querying participants who held 51% — $1.9 trillion — of outstanding U.S. commercial and multifamily mortgage debt. That debt was 80% or more of the holdings of life companies, CMBS and Fannie and Freddie Mac, and 62% of FHA loans. Conversely, just 7% of bank loans were represented. Principal balances averaged $14.2 million. Some valuable takeaways:

  • Distress is concentrated in hospitality and retail.

  • Performing mortgage balances dropped from 95.1% to 93.9%. Hospitality was the weakest, at 73%, seven percentage points weaker than the month prior. Retail deteriorated four percentage points, to 86%.

  • Other property types showed little movement. Multifamily declined 0.4 percentage points, to 98% performing; office 0.1 percentage point, to 97.7%; and industrial improved 0.4 percentage points, to 98.8%. These property types are performing just fine.

  • Due to retail and hospitality CMBS saw the highest delinquencies, moving up 3.3 percentage points to 12.6%.

  • Delinquencies barely moved for other capital sources. FHA loans improved 0.1 percentage points, to 96.8%; life companies declined 0.5 percentage points, to 97.8%; and GSE multifamily also declined 0.5 percentage points, to 98.5%.

  • COVID-19-related inquiries dropped dramatically, from 12.8% of loan balances in the month prior to 4.6% in May. Multifamily inquiries across the board were substantially below average, while industrial (1.5%) and office (2.6%) were below average as well. Retail, at 14.7%, was the clear outlier, followed by hospitality, 9.1%, and healthcare, 5.4%.

  • Formal change requests dropped from 7% to 3.1%.

  • Modifications, forbearance, or other actions — 2% of loan balances and up 0.9 percentage points — are driven by hospitality and retail. CMBS inquiries represented 10% of the unpaid balance. Trepp announced the largest monthly increase in CMBS delinquency rates ever in May.

MBA Survey table_for visual



Venture Capital In Focus

June 4, 2020

VC Funding Summary

  • Venture capital (VC) deals fell by 40.2% year over year nationally from March to May 2020.

  • However, dollars invested were off just 5.3%.

  • A consolidation is readily apparent: California, Massachusetts and New York firms received 74.5% of all VC dollars. Funding is up 2.3% over the past year and this is creating a concentrated set of metro areas as winners.

  • Capital is also pivoting. Biotech gobbled up 20.8% of VC dollars, up from 12.8% the year before.

  • Greater Boston, the Bay Area and San Diego are the big winners, capturing 71.6% of biotech-focused VC dollars.




Is REIT Pricing a Look Into the Future?

May 28, 2020

REITs sectors

  • Will the private market follow the lead of the public markets in terms of valuation? Public markets have shown incredible volatility – private markets typically trade in a more stable, linear fashion.

  • Overall, the stocks in this analysis are down 23.4% from February 19 through May 27 – significantly below major stock indices.

    REIT chart_updated 5.27.20
  • REIT office prices have improved in recent days, declining a net 37.7% since February 19. Boston Properties has improved 13.8% since May 22.

  • Alexandria Real Estate Equities, a pure-play life science bet, has seen a relatively modest stock decline of 9.8% – more in line with major stock index pricing.

  • Data centers are unique in this environment, but industrial is the best-performing large-product sector.

  • It took three years for pricing to regain previous peaks after the Great Recession.




April Sales Volume

May 21, 2020
  • Sales VolumeAggregate sales volume was $11 billion, down 71% year over year. April still benefited from pre-COVID-19 agreements – that will go away with May and June numbers.

  • Hotel investment is off 98%, retail 84%.

  • Office and industrial were the least impacted, off 60%.

  • Office volume is being driven by Boston sales activity — 40% of April volume.

  • Portfolio deals in apartment and industrial drove a high share of activity in each asset class.

  • The widening gap between buyer/seller expectations has caused a wide drop in transaction activity.

  • Volume typically increases as the year progresses, so we expect May and June figures to continue to deteriorate when compared to year ago numbers.

Largest Office Sales




Lenders Are Preoccupied, and More Cautious

May 14, 2020

Issuance Volume Comparison_graph% of CMBS Loans_graph

  • Banks, life insurance companies and debt funds have all become more selective, and credit spreads have gapped out.

    • Life insurance companies have increased minimum debt yield requirements, simultaneously raising coupon floors to between 3.50%–4.25%.
    • Banks have increased spreads by approximately 25 to 75 basis points over pre-COVID-19 borrowing costs, with new rates between 3.50%–4.00%.
  • Asset management has significantly overshadowed the pursuit of new debt opportunities, diminishing liquidity.

  • Lenders have quickly shifted their focus to rent rolls, status of tenancy and collections. Borrowers are facing higher scrutiny on cash flow durability.

  • Leverage has dropped approximately 5% to 10% across lending avenues, and lenders are fortifying structural loan components by instituting upfront reserves.

  • CMBS delinquencies are rising, while lenders have been forced to modify the billions of loans still held on book and once slated for securitization.

    • Goldman Sachs and Citigroup priced a $771.9 million conduit offering backed by 29 loans (GSMS 2020-GC47). The AAA tranche priced at S+145 basis points and the lowest publicly offered class (A-) priced at S+385 basis points.

  • The private debt market is creating opportunities for family offices.


Equity Capital Ready to Deploy

May 7, 2020

# of Funds ClosedDry Powder_chart

  • $319 billion of dry powder on the sidelines at the end of 2019 — equity isn’t a problem
  • Consolidation of funds continue — 72% in one fund as compared to only 61% in the prior year
  • Westbrook Partners ($2.5 billion), Walton Street Capital ($1.5 billion), Madison International Realty ($1.2 billion), TA Realty ($1.2 billion) led closed funds in Q1 2020 – 80% focused on value-add and debt
  • Trending/Caution: Q1 2020 fundraising was down more than 50% year ago levels