Commercial loans return 2.9% in 2013
IPD has released the preliminary fourth quarter 2013 results of the Giliberto-Levy Commercial Performance Index. The index, which tracks institutional-grade fixed-rate loans typically held by insurance companies and pension funds, saw total fourth quarter returns of 0.69 percent, which brings the total returns for 2013 to 2.9 percent. The fourth quarter returns broke down by property sector as follows:
- Apartment: 0.09 percent
- Office: 0.49 percent
- Industrial: 1.05 percent
- Retail: 1.06 percent
- Other sectors: 1.01 percent
The index’s fourth quarter numbers outpaced intermediate term Treasuries (–0.5 percent) and investment-grade CMBS (0.6 percent). The three- and five-year total return for the index ending Dec. 31, 2013, was 4.8 percent per year and 7.8 percent per year, respectively. The five-year returns outpaced the IPD U.S. Quarterly Property Index over the same period by 2.0 percent.
The authors of the report stated in a presentation on Feb. 26, 2014, that they anticipate total returns will get a slight lift in 2014 from the further diminution of credit effects. They went on to state that, while they cannot predict if Treasury yields will rise, fall or remain the same in 2014, an increase in 2014 could mean that total returns fall below current income yields, just as occurred in 2013. An increase in yields that reached 125 basis points to 150 basis points could consume the index’s current yield, which would lead to zero total return.
On the whole, if Treasury yields increase, it could lead 2014’s index results to be a “coupon minus” total return, much like 2013. If Treasury yields decrease, 2014 could see index results that are “coupon” to “coupon plus”.