Saturday, June 4, 2016

Real Estate Capital Institute Reports First Quarter Commercial Real Estate Sales Down

Jeanne Peck
Chicago, IL - The Fed's decision to maintain rates
during the mid-March meeting illustrates that global economic issues
outpaced any fears of domestic inflation, as mortgage markets and bond
investors are adding yield premiums in anticipation of further hikes later
in the year.  During the month benchmark five and ten-year treasuries
modestly dropped by just over ten basis points.

Early signs of "price discovery" influence investor behavior and
expectations as first quarter sales activity for commercial real estate fell
well below 2015 records levels.  Investors are taking a breather from
bidding wars as debt availability tightens due to conduit pricing
volatility.  Meanwhile banks adjust loan exposures slightly downward
pressured by new regulations initiated this year.  Yet investor demand for
high-quality assets continues unabated by foreign investors seeking safe
haven, even as domestic investors retreat.

As spring begins, the conduit markets are showing some signs of improvement
with Triple-A traches of debt selectively trade over 30 basis points lower
than earlier this year.  Mortgage bond investors prefer the improved
collateral offered in the most recent issuances, as conduit lenders become
more selective with choosing loan opportunities.  Also, fewer loan pools
have hit the markets in recent months, creating limited supply of offerings.
Other noteworthy trends within the debt markets include:

*    Despite a Treasury rally with declining rates, lenders are
establishing benchmark floor rates for various types of properties. (e.g.,
3.75% to 4%).

*    As CMBS players thread cautiously and widen spreads, agencies, banks
and life insurance companies are experiencing backlogs with loan requests;
the trend is shifting towards a "lenders market" versus "borrowers market."

*    Mortgage rates at very favorable levels especially for lower
leverage debt, despite tightening underwriting requirements.

*    Current banking and conduit regulations along with changes in public
market that pricing further constrained mortgage capital formation. Expect
more nonregulated private capital sources to fill the void, but at pricing
premiums, generally 5% or higher for longer term fixed-rate debt.

*    Pricing volatility for CMBS debt creates widening of at least 75 to
200 basis points or higher than similar bank and life insurance company
debt. Full transparency is the hallmark for working with conduit loans for
helping to manage pricing expectations in the midst of uncertainty.

The Real Estate Capital Institute's(r) director, Jeanne Peck, claims "Spring
brings more clarity to the capital markets, as both debt and equity
investors tread carefully." 

She adds, "Tertiary markets and more challenging properties will witness wider pricing, a healthy phenomenon, as the markets return to more 'rational' underwriting levels."

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

Jeanne Peck, Executive Director

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