Chicago, IL, Aug. 1, 2013 - Another month of "Fed
watching" that has
now become America's favorite spectator sport. The capital markets try to
guess how the balance of Fed monetary policy weighs in for driving interest
rates and economic growth. And watchers have not been disappointed with
the
action. After Independence Day, rates jumped up by 15 basis points as
investors nervously reacted to Fed comments about maintaining low interest
rates.
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| Jeanne Peck |
However, the dust settled with rates landing near the same
levels of
June. Some lenders refrained from quoting deals for a few weeks; they are
back in the market, some quoting shorter terms (5-7 years) where they had
been quoting longer term before. Bridge lenders and banks enjoyed
increased
attention given their LIBOR-based programs remained unaffected but the
Treasury volatility.
As for longer-term trends, lenders (especially agencies) are modestly
widening mortgage spreads in anticipation of higher rates given three
consecutive months of rising rates. Today mortgage rates are about five
to
ten basis points higher.
Lenders quote
longer-term loans at 180 basis
points over comparable term treasuries for 10 year deals and well over 200
basis points for high leverage debt. Meanwhile, conduits are tightening
pricing due to increased competition on Wall Street, the banks and life
companies, in general. Furthermore, investors are snapping up fresh CMBS
bonds, creating more optimism for this sector.
In the aftermath of rising rates, debt service coverage is the de facto underwriting metric for loan sizing. Other criteria, namely
loan-to-value, are less applicable with property value decreases not directly matching higher mortgage rates. Coverage of 125% is the standard for most loans
with 101% offered for credit deals and 140% or more for lodging assets. Should mortgage rates remain at current levels for a sustained period of time expect values to adjust downward with LTV ratios returning to prominence.
According to Jeanne Peck of the Real Estate Capital Institute,
"Sudden rate jolt fears have quelled, but everyone seems to be worrying about rising interest rates, particularly for 2014 and beyond." She adds,
"It's not a matter of rising rates, it's a matter of when rates will rise."
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.
For a complete copy of the company’s news release,
please contact:
Jeanne Peck
Executive Director
The Real Estate Capital Institute(r)
3517 West Arthington Street
Chicago, Illinois USA 60624
