Sunday, October 4, 2015

Real Estate Capital Institute Reports Commercial Mortgage Spreads Widen By More Than 15 Basis Points

Jean Darrow Peck
Chicago, IL- As Fed has decided to keep rates steady
again, mortgage spreads have widened by more than 15 basis points as well.

However, steady rates continue drawing back more bond investors into the realty capital markets, including those seeking safe haven from global

As a rule of thumb, shorter term loans of five years or less hover in the three-handle mortgage rate range for leverage levels below 75%, and longer term fixed-rate debt will start with a four-handle range, occasionally
dipping into the higher-three-percent range for stronger credit underwriting.  Floating rate debt pricing remains basically unchanged. 

With rates still at very competitive levels, lenders focus more on sponsorship and funding flexibility, rather than pricing for winning deals.

Banks, for example, will waive recourse requirements and fix rates, in order to prevent clients from moving to conduit or life company debt.

Alternatively, conduits provide higher leverage (including mezz/pref equity)
and delve into tertiary markets to gain market share.  Life companies offer
the lowest rates and additional proceeds during the loan term to draw
lower-leverage, higher quality properties.  Lastly, agencies provide a
combination of all of the above for multifamily deals, particularly
affordable housing ventures.

A potential Fed rate hike is one of the hottest topics within the realty capital markets.  Yet many investors and funding sources see little change in strategic plans, should rates rise as much as a quarter point.  Numerous players already believe that rates hit bottom and are now on a steady rise, although not at any dramatic levels.  In other words, gradual rate increases
are baked into investors' plans for the foreseeable future.

Peaking values are another topic most experts discuss.  While prices have reached, or exceeded, pre-recession levels, finding profitable investments at "reasonable" yields remains an elusive goal.  Despite record-pricing, investors still believe more room exists for steadily rising values; inflation and supply-constrained markets are hampered by escalating new-construction costs, making existing properties good value propositions.

The Real Estate Capital Institute's Jeanne Darrow Peck suggests, "people are
now expecting steady rate behavior, perhaps slowing down the pace of yield

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

For a complete copy of the company’s news release, please contact: 

Jeanne Darrow Peck, Executive Director

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