Commercial Lenders Saddled With Ample Cash, Real Estate Capital Institute Reports

CHICAGO, IL – The Real Estate Capital Institute notes that as the second quarter approaches,  real estate capital markets are nearly back to conditions that are more "normal.”

Lenders are saddled with ample cash and many have cleaned their balance sheets, no looking for fresh new funding opportunities.  General mortgage market conditions are outlined as follows:

 

Mortgage rates:  3.85% (for very low leverage) to 4.75% for up to 65% leverage is a typical range for 10-year loans offered by life companies.  5% is a rough benchmark for where CMBS and higher-leverage life companies are actively competing.  9-12% mezzanine and preferred equity funds available for funding debt above standard levels.

Loan Amounts & Leverage:  $8 million or more is a starting loan amount for
capturing the most competitive funds.  Smaller loans offered at pricing premiums of 25 basis points or more.  75% leverage is available from multiple sources for the highest quality retail and industrial properties, 65% to 70% is a benchmark for office properties. 

80% is the maximum leverage for apartments based on CMBS and agency execution.  With mezzanine financing, leverage levels approaching 90% are available for projects with ample cash flow.

Underwriting:  An overall debt yield of 9% to 11% applies for securitized
loans, although the trend is to use Rating Agency LTV as a new benchmark.

 

Observations:  Lenders' biggest concerns remain for finding projects that
have sufficient cash flow.  *Again, rates are the lowest in modern history
with 6% approaching "high risk" pricing. A couple years ago, such rate would
have been available to the highest quality projects. 

The Real Estate Capital Institute's Jeanne Peck (top right photo) notes, "Nearly every property sector is gradually recovering.  For example, office buildings are now financeable with lower overall occupancy levels of 70 to 80% being more acceptable. In contrast, 90% was a benchmark for much the past decade."

 

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. 

 Furthermore, call the Real Estate Capital RateLine at
7RE-CAPITAL (773-227-4825) for hourly rate updates.

Contact:

Jeanne Peck, Research Director

director@reci.com

http://www.reci.com/

The   Real Estate Capital Institute(r)
3517 West Arthington Street
Chicago, Illinois USA 60624

Agencies are the most effective at lowest pricing with highest leverage. Life insurance companies are the price leaders, particularly for low-leverage and flexible documentation.  CMBS players returned, mostly picking off commercial properties in secondary markets or with projects seeking higher leverage.