7 capital market trends to watch in 2012 via Kimco Realty Blog

Several factors are converging in 2012 to help the capital markets stabilize after experiencing significant volatility last year. Although some issues remain uncertain — particularly Europe’s financial struggles — several areas of the market are rebounding and gaining momentum. Here are seven capital market trends Kimco is watching in 2012, and how we see them impacting retail real estate throughout the year.

1. Spreads will continue to compress in the unsecured bond market. The unsecured bond market experienced an enormous amount of volatility in 2011. Spreads compressed significantly in the first half of the year, then widened as concerns about Europe’s debt crisis mounted — in Kimco’s case to in excess of 300 basis points over 10-year paper. The bond market was extremely weak over the summer, until late September when Deutsche Bank sold 1.5 billion euros in unsecured bonds. Since then, the market has been open. Volatility remains, although we’ve seen spreads start to compress again. Even at spreads of 200-250 basis points, with the 10-year bond trading somewhere around 2 percent, you’re still looking at 10-year financing in the low 4 percent area for a company like ours. That’s pretty attractive debt that is easy to access, so the unsecured bond market is clearly open and available. As we look into 2012, we expect to see further spread compression as we get more clarity around the European financial crisis and U.S. economic recovery. This should create opportunity for all REITs to opportunistically tap the unsecured bond market.

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