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| Jeanne Peck |
Chicago, IL Feb. 4, 2013 - Low interest rates continue
driving realty investments and profits on both Wall Street and Main
Street. Investors flock to this sector enhanced by record REIT
profits and the tightest supply of U.S. existing for-sale homes inventory
not seen for over a decade. Benchmark
yield changes and improving loan volume estimates for 2013 are the other major realty finance market news stories
this month:
Benchmark Yields:
Treasury rates creeped up by the end of the month, with
the ten-year note hitting the 2%-mark, the highest since
March. Mounting
rate uncertainty plagues that markets as lawmakers struggle
agree on the
U.S. debt ceiling.
Many analysts believe that rates may reach up to 2.25%
by yearend.
Loan Volume estimates: Wall Street, agencies and life companies are bullish for 2013. As B-piece
investors return, conduits expect to regain market share. CMBS lenders
target about $65 billion in new production - about a third increase in volume from the previous year. Agencies nearly doubled their funding volumes in 2012 to about $60 billion, but few
believe such performance levels are sustainable because of heightened
competition from other sources. Life
companies will keep their slice of the debt investment pie, hoping to top last year's $45 billion threshold. Lastly, banks now
have cleaner and leaner balance sheets. Banks traditionally account for about half of all funding volume. In particular, regional banks will reemerge as the "wild card" players looking to
expand market share.
Pricing Differentials: Despite select lenders raising
spreads, fierce competition drives very attractive spread negating any
really meaningful pricing increase. If
anything, the pricing arrows point down.
For ten-year debt, the best pricing spreads start at 160 bp for 55% LTV
or less leverage. Add an additional 15 bps to move up to 65% LTV and another
15 bps to reach full leverage at 75% to 80%. The difference between five and ten-year term loans equates to 25 to 40 bp higher spreads, but the
treasury notes are nearly 100 bp lower.
The net result of five vs. ten-year terms translates to at least a half point lower rates.
Ms. Jeanne Peck of the Real Estate Capital Institute,
emphasizes "The mix of a recovering real estate market with an oversupply of
capital leads to an exciting path of capital creativity. We expect that more new ideas and programs will emerge throughout the year."
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, Executive Director
The Real Estate
Capital Institute(r)
3517 West Arthington Street
Chicago, Illinois USA 60624
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