Funding Stalemate Stalls MarketsCHICAGO, IL--The Real Estate Capital Institute finds that as the year closes, the dramatic turn of recent events in the U.S. financial markets clearly redefines commercial mortgage metrics to conservative levels not seen in years.
Today, massive structural changes dictate mortgage underwriting based on highly conservative and transparent terms and conditions.
And in particular, with few exceptions lenders are unwilling to provide funds at acceptable leverage levels (e.g., 75%-80% loan-to-value) as compared to the any year within the past decade. Under such circumstances very few loans are funded, resulting in mortgage market gridlock.
Investors are looking for clues as to how long the gridlock will last. In other words, when will real estate capital markets return to a “normal” cycle?
According to discussions with advisory board members of the Real Estate Capital Institute, the general consensus regarding the overall direction of today’s realty capital cycle is outlined as follows:
The Peak: The overall upward trend started in about 2004 and rapidly accelerated in 2005-06. The real estate capital markets peaked by the end of 2006 and early 2007.
Investors are looking for clues as to how long the gridlock will last. In other words, when will real estate capital markets return to a “normal” cycle?According to discussions with advisory board members of the Real Estate Capital Institute, the general consensus regarding the overall direction of today’s realty capital cycle is outlined as follows:
The Peak: The overall upward trend started in about 2004 and rapidly accelerated in 2005-06. The real estate capital markets peaked by the end of 2006 and early 2007.
Current Cycle: Since interest rates and corresponding mortgage spreads continue rising, rate relief is not in site until domestic markets find more stability within the bond markets, in particular. The remainder of 2008 will be highly tumultuous as investors try to sort of the Wall Street Bailout and access “real” property value
. 
The Bottom: Many believe that the current market doldrums are at least one to two more years in the making with 2009 being a flat, or declining year.
The Bottom: Many believe that the current market doldrums are at least one to two more years in the making with 2009 being a flat, or declining year.
The Future: Values will settle to more “normal” levels by about 2011. Market volatility remains a key concern, but supply and demand dynamics for most types of commercial properties are within general balance. Longer recoveries are expected in some of the costal markets which were severely overvalued.
Given this two-to-three-year outlook, the new real estate cycle slogan might sound like "Tow the line in 2009; If not then, try 2010."
Given this two-to-three-year outlook, the new real estate cycle slogan might sound like "Tow the line in 2009; If not then, try 2010."
(Wall Street, bottom right photo)
Regardless of exactly how long the current malaise continues, almost everyone agrees the realty capital markets are in for a wild ride the next few years.
The Real Estate Capital Institute®
3517 West Arthington Street
Chicago, Illinois USA 60624
Contact: Nat Zvislo, Research Director
Toll Free 800-994-RECI (7324)
director@reci.com and http://www.reci.com/
Regardless of exactly how long the current malaise continues, almost everyone agrees the realty capital markets are in for a wild ride the next few years.
The Real Estate Capital Institute®3517 West Arthington Street
Chicago, Illinois USA 60624
Contact: Nat Zvislo, Research Director
Toll Free 800-994-RECI (7324)
director@reci.com and http://www.reci.com/
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