the BRIEFING: May 2013


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The Briefing is a monthly piece by Transwestern that discusses the national economy, capital markets and real estate outlook at a glance. It is an aggregation by Tom McNearney, Transwestern's chief investment officer, of other articles and reports.

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the BRIEFING: May 2013

  2. 2. www.transwestern.netFollow us | @Transwesternƒƒ The housing market continues to show significant signs of real improvement.ƒƒ 1Q13 housing prices up 11.3% vs. 1Q12 – the largest YOY gain since 2005ƒƒ 133 of the 150 cities reported price increasesThe year began on a strong economic trajectory,but tax increases, sequestration job furloughs andlayoffs, and imminent budget ceiling issues startedto create a drag on both public sentiment and retailsales.THE ECONOMY-14%Computer sales droppedin 1Q13, despite release ofWindows 862%Global sales increase of apps,which is expected to hit $25 bnin 2013700,000Number of apps offered byGoogle and AppleTHE DIGITAL (R)EVOLUTION CONTINUES!
  3. 3. Follow us | @Transwesternƒƒ Productivity remained somewhat muted in 1Q13 increasing at a seasonally adjusted0.7% annual rateƒƒ Bank commercial and industrial loans grew at an 11% annualized rate 1Q13, the sixthdouble digit increase in seven quartersƒƒ Jobless claims fell to 336,750, the lowest level since the pre-recession periodƒƒ Obama Administration cleared the way for broader natural gas exports by approvinga $10 bn new facility in Texas.ƒƒ However, new energy commissioner delayed approval of 10 applications toexport liquid natural gasThe key will be to find the delicate economic glide path betweenausterity and full stimulus that enforces some fiscal discipline withoutsnuffing out economic growth. Ironically, the stalemate between thelawmakers may inadvertently and unintentionally provide that path.THE ECONOMY, cont.
  4. 4. www.transwestern.netFollow us | @Transwesternƒƒ Chinese economic growth slid further to 7.7% in 1Q13 vs. 7.9% at YE 2012ƒƒ Europe likely to experience mix of recession and tepid growth for another two yearsƒƒ European Central Bank shifting from austerity to more stimulus-oriented measuresƒƒ European Central Bank cut key lending rate to record low – .05% from .075%ƒƒ Will make unlimited funds available to commercial banks at least into mid-2014ƒƒ EU grants member nations until year-end 2015 to hit 3% maximum deficit targetƒƒ Unemployment for EU (broader European Union) 27 nations expected to hit11.1% in 2013 vs 10.5% in 2012ƒƒ ISM Manufacturing dropped below 50, indicating contraction – watch the ISM non-manufacturing index for further weaknessHeadwinds still abound and economic growthcontinues to face issues in the EU and around theworld.THE HEADWINDS
  5. 5. www.transwestern.netFollow us | @Transwesternƒƒ Reserve Bank of Australia cut its interest rate by 25 bps to a record-low of 2.75%citing below-trend growth expectations and moderating commodity pricesƒƒ Probably also an attempt to devalue the strong Australian dollarƒƒ South Korea also cut benchmark rate by 25 bps to 2.50% in an effort to staycompetitive and halt the rise in value of the won vs the yenƒƒ Bond market rally in U.S. reversed negative returns in 1Q13, which had people talkingabout the “great rotation” from bonds into stocksƒƒ 30-year bond near record-low at 3.19%Investors continue to be hungry for returns afterseveral years with benchmark rates near zero.CAPITAL MARKETS
  6. 6. Follow us | @Transwesternƒƒ European Central Bank cut key rate from 75 bps to 50 bpsƒƒ Italy and Spain continue to deal with deep recessions and rising unemployment,yet they are successfully issuing sovereign debt at affordable levelsƒƒ France has lost its AAA rating and its economic conditions continue to steadilyworsen, yet France just sold 10-year bonds at record-low yieldsCentral banks are pumping cash into the world financial markets asEurope takes it foot off the austerity pedal.CAPITAL MARKETS, cont.
  7. 7. www.transwestern.netFollow us | @Transwesternƒƒ Fannie Mae reports record 1Q13 profits of $58.7 bn and is on the cusp of repayingtaxpayers for one of the most expensive bailouts in the financial crisis, a combined$187 bn for Freddie Mac, Fannie Mae and Federal Home Mortgage Corpƒƒ Fannie will have repaid $75 bn of the $116 bn it owesƒƒ Freddie reported full-year 2012 profit of $11 bn; first since 2006 and 1Q13quarterly profit of $4.6 bn, second highest quarterly profit in historyƒƒ Freddie and Fannie instructed to reduce apartment lending by 10%ƒƒ Surging CMBS volume 1Q13 $25 bn, the highest quarterly total since 2007CRE continues to provide an attractive return toboth institutional and non-institutional investors.Currently no shortage of either debt or equity withmany investors distressed about the shortage ofproduct in both the core and value-add markets.2013 REAL ESTATE FORECAST
  8. 8. Follow us | @Transwesternƒƒ Spreads as tight as 150 bps on performing office loansƒƒ Loan maturities now 3 to 5 years rather than 1 to 3 yearsƒƒ Loan covenants showing signs of disappearingƒƒ Wells Fargo, the largest CRE banker, with a portfolio of $63 bn; Bank of America 2ndwith $25 bn; US Bank 3rd with $16 bnƒƒ Starwood Property Trust finalized $350 million construction loan to Related on officertower slated for Manhattan’s Upper West Sideƒƒ Capital Trust filed with SEC to raise $100 millionƒƒ Jefferies Loan Core offers bridge, mezz and now “bridge equity”ƒƒ Starwood filed with SEC to raise $750 millionExtreme competition on banks to win loans putting pressure onspreads and covenants, including recourse provisions. Non-bankcommercial mortgage lenders proliferate.REAL ESTATE FORECAST, cont.
  9. 9. the BRIEFING is an aggregation by Tom McNearney, Transwesternchief investment officer, of other articles and reports. Tom leadsTranswestern’s capital market efforts for development andinvestment nationwide. Tom also serves on the firm’s investmentcommittee and board of directors, and he directs the executionand expansion of the firm’s principal investment activities acrossthe country.DISCLAIMERCopyright © 2013 Transwestern. All rights reserved. No part of this work may be reproduced or distributedto third parties without written permission of the copyright owner. The information contained in this reportwas gathered by Transwestern from various sources believed to be reliable. Transwestern, however, makesno representation concerning the accuracy or completeness of such information and expressly disclaims anyresponsibility for any inaccuracy contained herein.the BRIEFINGTHE NATIONAL ECONOMY AT A