Done Deals: Mortgage Spreads Stay Steady Even as Interest Rates Move Upward

Tuesday, September 3, 2013

Mortgage Spreads Stay Steady Even as Interest Rates Move Upward

Chicago, IL, Sept. 3, 2013 - The seesaw battle between inflation

fears and lagging economic growth reflected the investor fears of August.

The last full month of summer witnessed rates steadily rise by more than 25

basis points for 5 year maturities as investors try to tackle uncertainty

based upon Fed Policy.

Even as interest rates moved upward during the past few weeks, most lenders

have held mortgage spreads unchanged. Permanent mortgage rates for ten-year or longer debt are hovering in the 4.75% to 5.25% for most property types.

Shorter-term debt is readily available at 4% or below for the most part.

With another round of mortgage rate hikes, borrowers feel pressured to lock into fixed-rate debt. On the other hand, lenders are trying to carefully match optimal rates with the proper yield profile as not to have too much long-term debt exposure, should rates continue rising. Given such capital market conditions, expect more equity/participating debt programs to emerge

as lenders look for rate protection.

Commercial property markets recovery is choppy with major coastal and energy-related markets enjoying stronger results. In the commercial

property markets, many businesses feel better about the economy.

As such,

tenants are starting to sign longer-term leases, and landlords report improving cash flow, especially in the industrial and retail sectors. Multifamily properties and hotels continue to enjoy better performance, but owners worry about rising expenses - especially from real estate taxes.

The Real Estate Capital Institute's Jeanne Peck suggests, "The remainder of