Chicago, IL -- The stock market hit new highs and treasuries
climbed upward, yet mortgage rates held steady with 10-year notes rising by
less than 15 bp and five-year notes nearly unchanged.
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| Jeanne Peck |
For the most part, lenders absorbed rate increases by
dropping spreads. What's more, mortgage pricing differences between various types of properties and levels
within the capital stack continue tightening as evidenced by the following
long-term debt pricing summary as indexed over the 10-year treasuries:
* Low Leverage Senior Debt: 150 to 170 bps over treasuries for 65% Loan-to-Value or less, with multifamily and credit-tenant loans reflecting the lower end of the pricing curve. Lodging loans about 20 bps higher and10% less leverage.
* Low Leverage Senior Debt: 150 to 170 bps over treasuries for 65% Loan-to-Value or less, with multifamily and credit-tenant loans reflecting the lower end of the pricing curve. Lodging loans about 20 bps higher and10% less leverage.
* Full Leverage Senior Debt: 170 to 220 bps for 75% to 80% LTV; 75%
applies to most types of commercial properties except for lodging
(generally, 65%) and 80% targets multifamily/credit loans.
* Mezz/Preferred Equity: 300 to 1,500 bps for 5% to 15% additional proceeds, generating a combined 75% to 90% LTV. Overall yield (inclusive of fees) of 7% to 12% for lower leverage and up to 18% for higher leverage, more structured funding leaning towards equity yields.
* Joint Venture/Equity: 1,500 to 1,700 bps for up to 10% of the
total proceeds. Overall yield of 18% or more for higher-risk and new construction/rehab deals. Equity multiples of 1.5X to 2X targeted.
Pricing heavily weighted on sponsorship, in addition to deal metrics.
* Underwriting: Since capitalization rates are at record-low levels for most types of core and core-plus properties, funding sources are turning to debt yields (8% to 9.5%) and debt service coverage ratios (1.15X-1.25) as minimum cash flow performance thresholds for senior debt. Mezz, pref equity, JV and equity funds often priced as low as breakeven cash flow if projects demonstrate performance upside.
Jeanne Peck, director of the Real Estate Capital Institute suggests, "Lenders are eager to lend. However, obtaining debt is much less of a problem than finding reasonably priced investments for most borrowers."
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.
7RE-CAPITAL (773-227-4825) for hourly rate updates.
The Real Estate Capital Institute(r)
3517 West Arthington Street
Chicago, Illinois USA 60624
Contact: Jeanne Peck, Executive Director
director@reci.com
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