HFF Research Update for August 24, 2016: Norrmalmstorg

Wednesday, August 24, 2016

Weekly insights on current research in the commercial real estate industry from HFF Managing Director of Research Jimmy Hinton. View Daily Rates on the HFF website.

On this day (plus one) in 1973, a bank heist was foiled. What transpired during and after the robbery remains the subject of terrific interest to criminals, law enforcement and psychologists alike.

Mr. Jan-Erik Olsson, on leave from prison and known for violence and armed robberies, walked into the Kreditbanken in Norrmalmstorg Square in central Stockholm, Sweden, with a firearm. Immediately confronted by two policemen, Olsson took four hostages into the bank’s vault. Over the course of six days, Olsson negotiated with police, his attorney and even the prime minister.

However, it was Kristin Enmark, one of the four hostages, that practiced some of the most notable negotiating tactics. She implored the police to be lenient and not escalate tactics to violence. She allegedly spoke to the prime minister, informing him of her displeasure in his attitude and wishes to be set free along with her captor. Eventually, police gassed the vault, and Olsson was arrested alongside a negotiator-turned-accomplice.

Studying the tactics and aftermath of the ordeal, criminologist Nils Bejerot described the manner in which the captives sympathized with Olsson as “Stockholm Syndrome.” Misguidedly upset with the attempts of the police to find resolution, the hostages clearly absolved Olsson of any guilt associated with his crimes, which directly threatened their safety.

Norrmalmstorg was anything but “Norrmal” that week, and it would appear the summer of 2016 is set to close having experienced an abnormal compression of yields in the corporate bond market.

I am guilty of generalizing about credit markets in the summer. The narrative makes sense at a superficial level: trade desk veterans escape for vacation, younger associates take caution at the helm, credit spreads widen, liquidity constrains, spreads gap out a little more, then, after Labor Day, normal business resumes. But is this really conventional?

Not recently.

As the below imagery conveys, the yield on BBB-rated corporate bonds with 10 years of maturity has fallen approximately 60 basis points since June 1, a steeper decline than in the summer months of each of the past five years.

Moreover, this summer’s yield compression comes at a time when the 10-year BBB yields began summer at their lowest level ever – and now are at all-time lows of 3.357 percent (see table below).     

The (truly) historically-low interest-rate environment we are currently experiencing is impacting the public pension plan industry in very significant ways. Look for more on this topic and its impact on commercial real estate after the Labor Day holiday.

About Jimmy Hinton

Jimmy Hinton serves as managing director of HFF and is responsible for the firm’s national research efforts. Mr. Hinton works with the executive management team to assist in investor relations and to inform both HFF staff and firm clients with in-depth analysis of economic, property and capital market trends. He is also responsible for providing extensive market reports, client presentations and deal-specific analysis for debt placement and investment sales assignments. Mr. Hinton’s responsibilities include substantial interaction with pension funds, life insurance companies, regional and CMBS lenders, REITs, foreign investors and private equity funds.

During his tenure at HFF, Mr. Hinton has supported the execution of more than 150 commercial real estate transactions totaling more than $4.5 billion in 20 states. Mr. Hinton has experience in fixed- and adjustable-rate debt, mezzanine debt, construction loans and joint venture executions on behalf of clients engaged in the acquisition, development and recapitalization of property types including multi-housing, industrial, office, retail, medical office and storage properties.

By Topics