CHICAGO, IL, July 5, 2011 - The Real Estate Capital Institute’s monthly Scoreboard reports fed quantitative easing policies, the Euro monetary crisis, rising concerns about inflation in China and the overflow of capital into commercial real estate are all tampering with lowmortgage rates.
Treasuries are rising and the Federal Reserve has minimal room to continue
monetary easing, despite fragile economic conditions. Throughout the past
week, treasury rates have risen in excess of 3.1%, the highest since the end
of May. Rates are already bouncing along the bottom of the curve and can
only be expected to move upward.
Just as Treasuries rise, mortgage spreads also widened -- by about 30 to 50
basis points; concerns loom over CMBS performance. The Rating Agencies warn about the rapid reintroduction of pro forma cash flow projections as part of
underwriting new loans.
To stay competitive, conduit lenders react by tightening underwriting and pushing back on leverage. However, such lenders still offer cashouts and a wider spectrum of funding programs (e.g.,combination permanent loan with mezz debt).
In the midst of such change, multifamily properties still capture the lowest
rates. Despite concerns about the future of agency lending, Freddie Mac and
Fannie Mae are sought by investors and borrowers, alike. Improving
profitability, the government's continued backing of the housing sector and
no real short-term alternative solutions are reasons for guarded optimism
for this funding sector to stay viable.
The lodging industry is the bright star in the commercial property sector
and room rates rise and occupancy levels recover to pre-recession levels.
This sector is also supply-constrained as few investors dare to venture into
new construction in the foreseeable future. Lenders take note, selectively
financing hospitality properties at pricing levels matching other more
traditional commercial property types, although at leverage of 65% or below.
Ms. Jeanne Peck (top right photo) of The Real Estate Capital Institute, forecasts "at the mid-year mark, very little room remains for absolute rates to drop further."
Peck notes, "The main focus must be on improved cash flow performance
through expense reductions and more aggressive income growth, where
available."
The Real Estate Capital Institute(r) is a volunteer-based research
organization that tracks realty rates data for debt and equity yields. The
Institute posts daily and historical benchmark rates including treasuries,
bank prime and LIBOR.
Contact:
The Real Estate Capital Institute(r)
3517 West Arthington Street
Chicago, Illinois USA 60624
Contact: Jeanne Peck, Research Director
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