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OUR COMPANY AFFILIATES

CBRE GROUP

CBRE Group, Inc. is the world’s largest commercial real estate services and investment firm, with 2018 revenues of $21.3 billion and more than 90,000 employees (excluding affiliate offices). CBRE has been included in the Fortune 500 since 2008, ranking #146 in 2019. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services.

INVESTMENT SERVICES

CBRE Global Investors, combined with CBRE Clarion Securities and CBRE Caledon, is one of the world’s leading real asset investment managers with $107 billion in assets under management.

Built up over more than 40 years, our unparalleled platform is focused on real assets, giving our institutional clients access to real estate and infrastructure in the Americas, Europe and Asia Pacific. Our clients benefit from a complete range of investment solutions including equity and debt, direct and indirect, and listed and unlisted strategies.

Trammell Crow Company, founded in Dallas, Texas in 1948, is one of the nation’s oldest and most prolific developers of, and investors in, commercial real estate.The CBRE Global Investors and Trammell Crow Company platforms make up the Real Estate Investments division of CBRE Group.

The Real Estate Investments division is led by
Danny Queenan, Global CEO, Real Estate Investments.

BLOGS

Regularly released content on the state of the real estate and infrastructure industry are produced by our subject matter experts and shared on their blogs. A selection of them can be found below.

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CAPITAL WATCH

Despite recent volatility in the debt and equity markets, commercial real estate capital market conditions remained accommodative through early 2019. Growing concerns regarding the health of U.S. and global economies were assuaged by the Fed’s more dovish approach to interest rate normalization. Intense competition for financings, spurred by the rapid growth in the number of private debt funds, maintained tight loan spreads. A key driver of the historic level of commercial real estate sales in 2018, M&A transactions retreated in 1Q19, resulting in more tempered sales activity relative to recent periods. Cap rates are near cyclical lows across property sectors, while pricing remains in fair territory. Commercial mortgage originations rose year-over-year, as higher bank, life company, and Agency lending offset the continued decline in CMBS conduit loan production.

TRANSACTION VOLUMES

Current Status: Following a record-setting year in 2018, transaction volumes came back to earth in 1Q19, with $109 billion in sales during the first three months of the year – a 9.4% year-over year decline, according to Real Capital Analytics. Sales activity was flat or declined across all property types. Entity-level sales, which have propelled transaction volumes in recent quarters, were absent in the first quarter, contributing to the pullback in deal activity. Despite the overall decline in sales activity, transaction volume in a number of key secondary markets rose sharply.

Outlook: Despite rich pricing, real estate remains fairly valued relative to fixed income alternatives. Attractive spreads combined with still-healthy property market fundamentals should sustain sales activity.

Q1 2019

$109bn

9.4%

U.S. Transaction Volumes
(Q1 2018 – Q1 2019)

224

12%

Loan Originations Index
(Q1 2019)

2.32%

37bps

10-Year U.S. Treasury
(5/24/19)

2.42%

8bps

30-Day Libor
(5/21/19)

YoY from Q1 2018

U.S. COMMERCIAL REAL ESTATE TRANSACTION VOLUME

PRINCIPAL CONTRIBUTORS:
Jeremiah Lee
Joey Valenzuela
CAP RATES

Current Status: Cap rates remained at cyclical lows across most property types, with industrial, apartments, and CBD office cap rates maintaining a downward trajectory through 1Q19, according to Real Capital Analytics. In contrast, suburban office and retail cap rates have increased in recent quarters – a reflection of the structural headwinds muting tenant demand in both property sectors.

Outlook: Continued economic growth combined with positive market fundamentals across most property sectors and a still-accommodative capital market environment will keep overall cap rates stable in the near term.

CAPITALIZATON RATES

Source: Real Capital Analytics

CAP RATE SPREAD TO 10-YEAR TREASURY

Current Status: Implied REIT cap rates have declined in recent months, reversing the sharp increase observed through the final months of 2018 and early 2019, as turbulence rattled equity markets. Despite the rebound in REIT pricing through 2019, the 10-year Treasury yield also declined over this time, leaving spreads at levels in line with recent averages. Through April, the spread to the risk-free rate contracted to 307 bps, remaining below the long-term historical average of 332 bps.

Outlook: Supported by positive property fundamentals and the still-accommodative capital market environment, sustained investor demand for commercial real estate will maintain narrow spreads through the near term.

REAL ESTATE SPREADS
Sources: Real Capital Analytics, Green Street Advisors, Federal Reserve
LOAN VOLUME AND LENDER COMPOSITION

Current Status: Mortgage origination activity in 1Q19 increased by 12% year-over-year led by a sharp increase in Agency lending, according to the Mortgage Bankers Association Quarterly Originations Survey. Lending by life companies and commercial banks also increased during this time, while CMBS lending waned. By property type, growth in originations for industrial, healthcare and hotel properties were particularly strong.

Outlook: The share of financial company commercial mortgage lending, primarily through private debt funds, showed the largest increase in 2018, rising to 10% of all first mortgages, according to Real Capital Analytics. With banks focused solely on lending to stabilized assets, the financial company share of mortgage originations will continue to increase.

LOAN VOLUMES
Source: Mortgage Bankers Association
LENDER UNDERWRITING STANDARDS

Current Status: A reflection of the heightened economic uncertainty and lower appetite for risk resulting from recent volatility, commercial lending standards tightened while demand for commercial mortgages softened over the previous three-month period, according to the Fed’s April 2019 Senior Loan Officer Opinion Survey.

Outlook: Tighter loans spreads and the intensifying competition to place debt will force lenders to move up the risk curve. This trend will be supported by the anticipated increase in demand for the financing of transitional assets in more peripheral markets and construction projects going forward.

SENIOR LOAN OFFICER OPINION SURVEY
Source: Federal Reserve Board
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This information is for our clients and investors only. Please note that the content of this report is for informational purposes only and should not be viewed as investment advice or an offer or solicitation. Any opinions are solely those of the Strategy and Research Team of CBRE Global Investors and are subject to change without notice, and may not be consistent with market trends or future events. This research is based on current public information that we consider reliable, but we do not represent it as accurate, updated or complete, and it should not be relied on as such.

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