Saturday, July 2, 2016

Real Estate Capital Institute Reports Hot Summer for Debt and Equity Markets

Jeanne Peck
CHICAGO, IL  -The summer remains hot for the real estate
debt and equity markets, despite some cooling on the coasts. Even as prices
have peaked in some of the major primary markets, much of the country still
on track with record sales and financing volumes. Low rates, lack of quality
investment opportunities and overall strong cash flow performances keep
investors in the game at a frenzied pace.

After the surprising results of Brexit plunged rates to record-low territory
late last month, the Fed may abandon any efforts to raise rates and even
lower rates.  Even as the British European Union issues subside, overall
global malaise should continue to keep yields low with foreign investors
flocking to US treasuries for safety.

Persistently low interest rates assure that capitalization rates will also
remain low, translating to peak pricing with less attractive yields.

However, some markets are starting to see pricing levels stabilize, as
investors find minimal yield differences between various property sectors.
For instance in the case various types of "bed" properties, student housing,
senior facilities and traditional multifamily assets trade at much tighter
yield spreads than in the past. Any type of institutional quality
investments, longer-term internal rate of return benchmarks are in the
middle to higher single-digit range for core properties.

Will real estate investors flock to other more profitable investment
categories?  More opportunistic investments are advertising yields in the
lower to middle teens, also at historical lows, but not low enough to
discourage investing.  In other words, real estate yield risks are still
perceived to be lower in comparison to alternative stock market investments,
since deals are backed by "real" assets.

Now more than ever, borrowers are ambivalent to fixed-versus-floating-rate
debt. Overall mortgage rates dipped below 3% for shorter-term debt of five
years or less; longer-term fixed-rate debt is priced in the higher 3% to
lower 4% range. Due to a variety of factors relating to risk aversion and
regulatory concerns, many lenders favor "safety versus yield philosophy,"
offering lower rates as opposed to higher leverage (e.g. more than 65%

Jeanne Peck of the Real Estate Capital Institute(r) suggests, "Lenders are
accustomed to providing lower leveraged loans."  She adds "Just the same,
investors are becoming accustomed to keeping more cash in properties since
fewer other yield opportunities exist and prices stay at peak thresholds."

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

Jeanne Peck
Executive Director

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