US commercial mortgage market continues to deliver solid performance
The Giliberto-Levy Commercial Mortgage Performance Index, which tracks US institutional grade fixed rate loans typically held by insurance companies and pension funds, produced a 2.12 per cent total return in Q1 2014.
The index reflects a market value weighted blend of office, apartment, retail, industrial, lodging, mixed-use and other property types.
The 2.12 per cent total return of the index in the first quarter of 2014 was quite consistent with other fixed income measures including Baa-rated intermediate credit (2.23 per cent) and investment grade CMBS (1.41 per cent) and CMBS 2.0 (2.44 per cent). Intermediate term treasuries generated a more modest total return (0.65 per cent) running counter to the typical pattern of falling Treasury yields and rising mortgage spreads.
Apartments were the leading sector, with a total return for Q1 2014 of 3.0 per cent, higher than the equivalent returns on direct real estate investments (1.9 per cent). The trailing sectors were other (mixed-use, lodging and other property types) at 2.3 per cent, retail at 2.0 per cent, office at 1.8 per cent and industrial at 1.7 per cent.
The total return for the Giliberto-Levy Commercial Mortgage Performance Index over the past five years of 7.6 per cent pa fell below the IPD US Quarterly Property Index (direct unleveraged real estate) at 8.4 per cent pa, as well as the MSCI Equities Index at 21.3 per cent pa and MSCI Property Equities Index at 27.5 per cent pa. The Giliberto-Levy Commercial Mortgage Performance Index significantly outperformed the JP Morgan US Government Bond Index (7-10 Year) at 3.0 per cent pa and inflation at 2.1 per cent pa (Consumer Price Index).
The Giliberto-Levy Commercial Mortgage Performance Index is based on a USD180.6 billion aggregate portfolio that represents a thorough cross-section of fixed-rate, fixed-term loans made by institutional lenders. IPD has been producing the index in concert with Michael Giliberto and John B Levy & Company for the past two plus years.
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