HFF Research Update for June 14, 2016: Old Glory

Tuesday, June 14, 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.

Greetings from London,

On this day in 1777, the Stars and Stripes was adopted by Congress as the flag of the United States. The design of the flag has been modified more than 25 times since, and not only because of the addition of new states to the union. The first change included properly separating the new country and its states from their previous sovereign.

As it happens, the first official flag of the United States was called “The Continental Colors” and included the British Union Jack. Naturally, politicians wished to solidify the country’s independence from the monarch by removing that visual link. Ten days ahead of the Brexit vote on June 23, Americans are once again wishing the link between our two economies was more opaque.

The Continental Colors aka The Grand Union

This morning, the yield on Germany’s 10-year bund turned to negative territory for the first time ever. The yield on that security has been falling for some time (see graph below), so we cannot attribute the move to negative yields singularly to the Brexit vote. However, the mood here is increasingly one of uncertainty and therefore desire for security. And that mood was reflected broadly during Monday’s trading sessions.

Yield on the 10-year German bund (%)

The growing possibility that the United Kingdom might leave the European Union dragged global markets down yesterday, reflecting increasing and broad concern that a prolonged stretch of uncertainty – no matter the result of the vote – could damage economic growth and trigger losses in financial markets. Monday’s biggest losses were in Asia, where major stock indexes dropped 3.2 percent in Shanghai and 3.5 percent in Japan. In the U.S., the S&P 500 dropped 0.8 percent and the yield on the 10-year UST note slumped to 1.616 percent, its lowest since December 2012; but still 15 basis points higher than its all-time low established in the same year.

Though no majority in polls exists, recent gains for the “Leave” party are turning the possibility of a Brexit to a potential probability.

Perhaps fittingly, the skies in London are overcast; but it is not yet raining. Stay tuned.

About Jimmy Hinton

Mr. 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, assisting in investor relations and providing both HFF employees and firm clients with in-depth analysis of economic, property and capital market trends. Additionally, he provides extensive market reports, client presentations and deal-specific analysis for debt placement and investment sales assignments. Mr. Hinton works 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.

Sources: The Wall Street Journal, HFF Research

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