Sunday, June 4, 2017

Real Estate Capital Institute Sees Only Modest Capital Rate Hikes on Horizon

Jeanne Peck

Chicago, IL -- "The Day the Rates Stood Still" would be
the title of a real estate finance sci-fi thriller describing the state of
the capital markets.  Over the past month, numerous trading days resulted in
the same rates as the previous days, a pricing pattern not seen anytime
earlier this year.   The reduced rate volatility indicates the markets
expect relatively modest rate hikes in the next few months. 

In capital markets awash with investment funds, such conditions favor
tightening mortgage spreads as rate-hike fears calm.  The overall flight to
higher quality, safer fundings creates even more pressure to tighten spreads
due to the limited supply of such lending opportunities.  As the domestic
economy keeps humming along at the currently favorable pace, expect
long-term mortgage spreads the investment-grade assets with lower leverage
to reach down toward the 100-basis-point range.

Today's lower debt costs come as tremendous relief to the industry given numerous other issues facing owners.  

For example, in certain pockets of the U.S. rents are difficult to maintain [and increase] within the apartment sector due to the onslaught of new supply.  On the commercial front, disruptive technologies and changing consumer habits place relentless pressure on retail and office properties to integrate bricks-and-mortar with
internet spending habits. 

As was a common theme at the International
Council of Shopping Centers' major RECon 2017 event, it is not a question of
retailers needing to sell via bricks and mortar as opposed to online - the
question is how to optimize using both!  Finally, operating expenses for all
property types are rapidly escalating due to higher labor and material
costs.  In the end, owners must allocate more funds to operating, over and
above debt service.

Ms. Jeanne Peck of The Real Estate Capital Institute, notes, "Steady debt
pricing is welcomed relief for the industry.  Instead of worrying about
rising debt-service costs, owners can allocate more spending on technologies
that improve income while reducing expenses."

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

Jeanne Peck, Executive Director

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