Saturday, March 5, 2016

Real Estate Capital Institute Reports Few Investors Fear Domestic Recession

Jeanne Peck
Chicago, IL - A Treasury market rally faltered after
the benchmark bond yield fell to the lowest in three-and-a-half years
without breaking the all-time level set in 2012.  

Global turmoil and
concerns about China and the Middle East quells any fear of rising interest
rates, yet few investors fear a domestic recession any time soon. Markets
hardly believe that the Fed will increase rates, as long as crude oil prices
slump, acting as a key indicator for tame inflation.

Such news bodes well for commercial real estate borrowing costs. With flat,
or even declining debt costs, the real estate investors can enjoy continued

Yet select markets are plagued by overbuilding, choppy
economic growth and obsolete inventory.  A "Wide Divide" best describes
commercial real estate market behavior. Mortgage pricing reflects this clear
divide - rewarding strong performing assets with cheap debt, while punishing
secondary assets with much wider pricing and less dollars than in the recent

Funding sources find enough "good" product, but can't run away fast
enough from marginal deals.

The pricing divide is very real, as demonstrated by the dramatic retreat in
CMBS lending.  These pricing differentials have not been seen in about five
years.  Spreads, regulation or ballooning B-piece yields alone will cripple
the markets - but a lethal mix of all three does the damage to any type of
public market securitized financing.  

As further proof, REITS are shifting
to private markets to sell bonds, including seeking secured loans rather
than lines of credit. The high-risk portions of the debt stack are demanding
overall returns now in the 20% range, as B-piece buyers pull back in search
of more yield clarity and many expect there to be fewer of them over the
course of this year. 

Conduit lenders are not alone, as banks are also
pressured to widen pricing as conduit borrowers scramble for alternative

Director Jeanne Peck of the Real Estate Capital Institute(r), advises
"Investors want more return for perceived risk in today's real estate
market.  They are taking a hard look at the quality of the assets, the
strength of the project sponsor for full leveraged deals across all asset

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

Jeanne Peck, Executive Director

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