New Mortgage Pricing Benchmarks Set by Low Interest Rates

Chicago, IL -- The Real Estate Capital's Scoreboard for December notes that the Fed's clearly-publicized intention
to keep interest rates low until 2015 firmly establishes new mortgage pricing benchmarks for the next few years. Realty investors now fully realize that lower returns are here to stay within a flattened yield curve environment.  

Crowded competition for higher-quality loans also assures that virtually no extra money is left on the table for "arm-chair" yields.Lenders must aggressively hunt for the right loan opportunities, or stay on the sidelines.

Where is the low-hanging fruit in the real estate capital jungle? The answer lies in Pro forma lending.  Pro forma underwriting allows for more favorable

funding structures, while tapping into better yield profiles.  More forward-looking risk means more risk and corresponding profits.  The most popular routes for pro forma loans include high leverage debt, bridge loans and forward-delivery mortgages:
Bridge/Transition Loans:  High leverage bridge loans are a void in the market.  As banks slowly re-emerge from their past lending woes, bridge lenders fill the gap for borrowers seeking maximum debt on value-add acquisitions. 

Funding as much as 90% of the capital stack, most bridge

lenders are private debt funds willing to take such interim risk based upon yields in the high-single-digit or more range.  Extra origination and fees (as much as three percent) add to the juicy yields.  The risk is high, but the profits are attractive in the redevelopment plans are clearly devised by proven sponsorship.  Exit underwriting limited to 75% or less LTV based upon stabilized value projections and permanent loan programs available in the market for the bride loan "take-out."

High leverage debt: While maximum leverage is often the goal of many borrowers for improving profitability with less cash down, a number of justifiable circumstances warrant such underwriting if future economic performance is readily provable. For instance, well-located, well-conceived
commercial properties are rebounding due to rising tenant demand combined with more profitable rollover. Select funding sources understand such leverage goals and can achieve additional pricing of 25 to 50 basis points premiums for climbing the capital stack to as much as 75% LTV.

Forward-delivery Loans:  Borrowers seek these early commitments from lenders to minimize uncertainty in there capital transactions execution;  Lenders fear committing future funds at locked rates in case interest rates climb during the interim period. Forward deliveries are available because lenders see the benefit of capturing new-construction/refinance opportunities for projects that would otherwise be unavailable at attractive pricing (e.g., core multifamily) -- an early bite at the apple.

Jeanne Peck

Jeanne Peck of the Real Estate Capital Institute advises, "For the right
property/sponsor marriage, bridge loans have been an integral tool for
repositioning commercial and residential property as the market continues on
its path out of distress."

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. 

Call the Real Estate Capital RateLine at
7RE-CAPITAL (773-227-4825) for hourly rate updates.

The   Real Estate Capital Institute(r)
3517 West Arthington Street
Chicago, Illinois USA 60624

Contact: Jeanne Peck, Executive Director
www.director@reci.com
www.reci.com