CHICAGO, IL - Chicago-based Real Estate Capital Institute notes the US Dollar dropped from record
levels of the past year and a half. Moreover, the most recent domestic job
report shows the lowest levels of unemployment in nearly fifty years. Such
news helped minimize treasury volatility during the past month, fluctuating
by about 15 basis points. Short-term indices -- namely LIBOR - inched
upward by only a few basis points. As expected, ten-year treasuries moved
to nearly the same levels as the beginning of October, In the end, benchmark
rates behaved predictably, given the Fed's desire to gradually raise rates
over the next few quarters.
John Oharenko, director of The Real Estate Capital Institute's(r),
states, "Under very competitive realty funding conditions, creative capital
stack solutions are the norm, not the exception. Commercial real estate is
no longer a step-child investment class on Wall Street."
Lenders worry about potential market corrections mainly based on interest
rate hikes, oversupply and economic slowdowns. They flock to quality deals
via lower spreads and less leverage as the main underwriting defenses. With
lower leverage and favorable debt pricing offerings at hand, borrowers focus
on raising more cash on deals. For much of this decade, the capital stack
trend continues for generating more equity from yield-hungry investors, so
raising money is less challenging than finding good investment
opportunities.
demand for investing in realty capital markets. Shorter term, fixed-rate
debt offerings (e.g., five years) are priced nearly identical to ten-year
debt, encouraging borrowers to take on longer debt mainly via agency, life
company, conduit and debt fund sources. Seven-year maturities, are slightly
better priced, about ten basis points inside of ten-year debt. However even
as short-term debt pricing is less favorable compared to permanent loans,
floating-rate bank loans are still popular with borrowers for development
and repositioning projects. In these instances, flexibility is more
important than pricing.
Fixed-rate permanent debt starts at 4.5% for low-leverage LifeCo offerings,
climbing to the six percent range for 80% conduit/debt fund loans.
Otherwise, most commonly priced loans are within 4.75% to 5%.
The Real Estate Capital Institute(r) is a volunteer-based research
organization that tracks realty rates data for debt and equity yields. The
Institute posts daily and historical benchmark rates including treasuries,
bank prime and LIBOR.
CONTACT:
The Real Estate Capital Institute(r)
3517 West Arthington Street
Chicago, Illinois USA 60624
John Oharenko, Executive Director
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