Floating-rate loans stay attractive, often below 4%, reports RECI

CHICAGO, IL,  July 8, 2010 - As stock markets slide downwards, treasury rates follow suit with five and ten-year yields rounding down about 30 basis points lower from June -- below 2% and 3%, respectively, reports The Real Estate Capital Institute's July Scoreboard.

Combined with dropping spreads, borrowers are now enjoying fixed rates in the 4% to 5% range for lower leveraged loans. Floating-rate loans stay attractive, sometimes below 4%, as fears of inflation dissipate for the time-being.

Oversupply of funds being mismatched against a much sought-after supply of
higher-quality funding opportunities is the theme for much of 2010. However, this issue is evermore pronounced as lenders are under more pressure to fund such assets.

Unlike the past two years, the real estate capital markets are more stable as fresh transactions established new value benchmarks helping to remove valuation uncertainty from the underwriting process.

 Look to a flurry of aggressive lending at the end of the summer, when most capital
sources realize production levels are inadequate.

While still trying to maintain underwriting discipline, lenders seek creative funding solutions. For the most part, lenders continue to impose floors to dampen yield erosion.

The yield dams, however, will break as more monies flood the market. Expect longer amortization schedules (returning to 30 years), leverage approaching 75% or greater and funding flexibility such as partial fundings and forward-delivery loans. However, debt service coverage will remain at about 125%, since rates are relatively low.

The Real Estate Capital Institute's director, Jeanne Peck (top right photo)  expects
"Qualified borrowers are fast gaining the upper hand in negotiating debt. Low rates combined with more attractive leverage translate to fantastic cash flow opportunities."

Adding, "However, the equity markets see such competitive financing as reasons to maintain solid pricing, as refinancing remains a very real option vs. liquidation."

Contact: Jeanne Peck, Executive Director, Toll Free 800-994-RECI (7324)
 director@reci.com,  http://www.reci.com/