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| Jeanne Peck |
Chicago, IL - - Hurricane Sandy was no lady, or a pleasant trick-or-treat surprise. The massive devastation
froze the capital markets this week, with the full effects still unknown.
Yet the mid-fall funding season is very active, mostly due
to the resurgence of conduit lenders in the marketplace; all capital sources
are forced into competitive
bidding due to this CMBS "re-emergence". Both the
November Presidential
Election and Fed policy action reinforcing low rates until
2015 have
resulted in borrowers having less urgency to refinance by
year end. The
state of realty capital markets is summarized as follows:
* Record-low
rates: While treasuries climbed this
past month, spreads
tightened by as much as 25 to 50 basis points, depending
upon the type of
lender, leverage, project quality, etc. Ten-year, fixed-rate permanent
loans are priced regularly below 4% for lower leverage
transactions, while
five-year loans approach unheard levels near the 2%-mark. At the end, rates are only slightly higher than a month ago.
* Dropping floors:
- A clear result of dropping rates are lower [or
no] floors. Lenders
chase yields downward, eliminating floors on the way
down. The 4%-floor
was commonplace with life companies, while CMBS lenders clung to 5% for much of the year- but no more! Competitive lenders are dropping floors, in light of fierce competition from all
fronts: life companies, banks, conduit and agencies.
* New supply: More development deals brewing, and not just
multifamily.
However, development is very targeted - mostly underserved and urban infill sites.
In particular, multifamily with mixed-use components (parking, retail and office) grabs the spotlight due to the
readily available financing for this sector. New-construction office, retail and industrial deals are financeable, but with substantial
equity or based upon strong credit-tenant profiles.
* Smaller
loans: As the picking gets slim for
larger, quality assets lenders are moving down the dollar-size scale. Loans of $5 to $20 million
gain more traction, particularly with conduit lenders. During the past few years, much of this funding turf remained in smaller lifeco
and bank territory.
* Equity
pricing: Equity pricing closely follows
declining debt costs. Generally
speaking, Coastal Core properties are targeting overall yields in the 8%-10% range for multifamily, office, retail
and industrial properties.
Value-add pricing is within the 10%-15% range, including a wider spectrum of assets such as senior, self-storage,
health-care and lower
grade conventional properties. Last but not least, Opportunity funds target
appreciation vs. cash flow, taking on the remainder of the
commercial real
estate investment base with yields of 15% to 20% or more.
Ms. Jeanne Peck of The Real Estate Capital Institute
suggests, "Fierce competition among lenders is quickly reducing the risk
profile differential between various types of properties". She further notes, "The borrower is the real winner, as lenders finally realize lower rates are
here to stay for a while."
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:
The Real Estate
Capital Institute(r)
3517 West Arthington Street
Chicago, Illinois USA 60624
Contact: Jeanne Peck, Executive Director
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