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| Jean Peck |
Chicago, IL – Real Estate Capital Institute reports the
Low-Rate streak may be coming to an end, but by waiting, borrowers are rewarded
with low floating rates.
Interest rates steadily climbed since April, fluctuating
about 20 basis points and ending at nearly the same levels as a month
ago. This time, the Greek financial
crisis takes credit for rates steeply dropping by month's end.
With midyear funding goals and objectives on [or often
ahead of] schedule, numerous balance sheet lenders, namely life insurance
companies, are hitting their funding goals and objectives. Many of them cite funding targets in excess
of 10% or more.
These lenders are
expected to widen out their pricing as well as tighten underwriting standards,
as a result. Since absolute mortgage rates are at already near historical lows,
motivation to invest more capital in this sector is now more tempered.
The acquisition market is progressing at a healthy pace
with pushes from 1031 exchange buyers and from buyers' growing perception that
real estate is moving out of the "alternative asset class"
definition. The increase in rates may
somewhat interfere with the downward trend in cap rates.
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| Greece |
Balance sheet lenders are not alone, as mortgage conduits
and debt funds expect to also hit post Great-Recession funding targets for the
remainder of the year. While no shortage of capital exists, securitized lenders
will also widen spreads in response to LifeCo rate increases.
Borrowers will tolerate rate hikes of 10 to 50 basis points
before starting to seriously reevaluating cost-of-capital issues as part of
their investment strategies.
The end result?
Expect low mortgage rates for the remainder of the year, but at slightly
higher spreads over treasuries.
Conservative, lower leverage loans in nearly all property sectors will
enjoy the strongest funding demand, but secondary quality loans will still
generate demand as long as cash flow prospects remain strong.
"What is certain is the insatiable appetite for
higher-quality, cash flowing commercial real estate," suggests Jeanne Peck of the Real Estate Capital Institute(r).
"Borrowers are spoiled with lower cost
of capital, and owners/sellers with record high prices. Nothing on the horizon
will change these conditions for the second half of 2015."
For a complete copy of the company’s news release, please
contact:
Jeanne Peck, Executive Director
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