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| John Oharenko |
Chicago, IL – Putin's Ukraine invasion shakes global world order as pandemic winds down, reports The Real Estate Capital Institute® (RECI)
The flight to U.S. Treasuries tells
the story as investors seek safe harbor, translating to ten-year Treasury
yields dropping more than 15 basis points over the past week.
In addition to the concerns about Ukraine,
inflation fears haunt real estate investors.
However, strong CRE pricing continues due
to the extreme amount of liquidity in the marketplace.
And based on spreads over ten-year benchmark
treasuries, the key late-winter capital market pricing highlights are as
follows:
Equity: At the beginning of the 21st Century, overall cap rate spreads vs. risk-free treasuries reflected about a 400 basis point premium.
Since then, risk premiums have steadily declined as more liquidity finds this sector. Today, the risk premium is about 100 basis points lower, hovering in the 300 basis point range.
Even as
substantial variation exists based on property type, stabilization status,
location, etc., risk premium ranges remain steady -- fluctuating about 25 basis
points.
That said, the
relationship between cap rates and treasuries is not linear, as premium spreads
closely correspond to benchmark treasuries.
Debt: As
with equity, the abundance of capital helps pricing stay within tight risk
premium ranges over benchmark rates.
Furthermore,
government funding programs focusing on selective policy mandates (e.g.,
affordable housing) help keep pricing highly competitive in such
instances.
Mortgage risk premiums hover 200 basis points over benchmark rates. More variance exists, say 50 basis points, depending upon leverage and income stream quality. However, higher-risk fundings with shorter maturities can fluctuate by 100 basis points or more.
On a personal note,
The Real Estate Capital Institute's® director, John Oharenko, talks
about Ukraine, stating, "As an American of Ukrainian descent with family
still in the country, I am grateful for all the outreach and support of my
industry colleagues against Putin's war.
"I'm
honored to serve the real estate capital markets made possible by America's
free-enterprise system. Thank you, and may God bless you."
The Real Estate Capital Institute® 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:
John Oharenko
Executive Director
john.oharenko@reci.com
The Real Estate Capital Institute®
Chicago, Illinois USA 60622
director@reci.com / www.reci.com
