Wednesday, January 4, 2017

Real Estate Capital Institute Notes Mortgage Rates Shifted Upward for Nine Consecutive Weeks

Jeanne Peck

 Chicago, IL - Mortgage rates shifted upward for the
nine consecutive weeks.   The real estate capital markets welcome the new
year, anticipating additional rate hike throughout the year.  Last month's
25 basis point rate hike allowed the Fed dampen an improving economy backed
by steady employment growth.  This rate hike was the only one of the year
and second this decade.  Furthermore, the Fed published economic projections
revealing their desire to hike rates three more times in this new year.

Today's rate hike expectations have the following impact on capital markets:

Mortgage Rates:  Think "4%-handle" on any type of long-term debt, even at
lower leverage.  Current rates are at levels similar to the first quarter of
2014.  From a historical perspective, rates are within their lowest levels
of the past decade.  And spreads continue holding steady (or slightly
declining) depending upon individual lender appetite.  Most lenders have
reasonably robust funding objectives for this year, so pressure for tighter
spreads continues, especially for lower leverage and higher-quality CRE
financing opportunities.

Valuations:  A delicate balancing act of paying more for debt, but
potentially trading up for higher cash flow due to inflation keeps real
estate prices near peak levels.  Demand for credit-tenant, net-lease
properties via 1031 exchanges, as well as a limited supply of quality CRE
assets assures low capitalization rates within the current market cycle.
Alternatively, attractive purchase opportunities will emerge for those
properties requiring repositioning based upon fresh capital reflecting
higher rates than seen over the past few years.

Equity Risk:   Investors hope that Fed policies extend the currently
favorable economic cycle as long as reasonably possible, perhaps a couple
more years.  Recent business cycles (e.g., The Great Recession) created
overheated conditions with punishing results afterwards.  In the current
cycle, slightly higher interest rates dampen asset overvaluations.  Also,
recent financial regulatory pressures discourage lenders from allowing too
much leverage for riskier investments.  More so than ever, investors need
greater amounts of equity capital to backstop risk, leading to more cautious

Ms. Jeanne Peck of the Real Estate Capital Institute(r), predicts "Realty
capital market fluctuations bring attractive investment opportunities to
well-capitalized and patient buyers.  Motivated sellers will accept lower
prices, especially on deals that have been 'retraded' because of rising

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

Jeanne Peck, Executive Director

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