RECI Reports Borrowers Scrambled to Lock in Long-Term Interest Rates in June

Jeanne Peck

Chicago, IL -June closed to an active finish as

borrowers scrambled to lock in long term rates that decreased 10 bps due to
market fluctuations.  

Additional "action" in the mortgage markets is on the
underwriting front, with lenders continuing to loosen their purse strings
for borrowers in a variety of creative ways as discussed below:

Debt Payment Options:  Spreads are near rock-bottom, nearing unprofitable
yields as compared to other investment alternatives for funding sources.

Thus, few lenders will dip below 4% for ten-year funds, for example, but
will offer more interest-only payments for as much as half the loan term.

In addition, 30-year amortization schedules are common - especially with

banks and conduits.
    
Higher proceeds:  75%-80% is the traditional benchmark, but many conduits
offer built-in mezzanine financing to ratchet up the leverage above such
levels, as long as some debt coverage is available (1.15-1.20X minimum) and
cash-flow growth is demonstrable as with lodging and apartment properties. 

Loan Structure: Lenders are willing to consider funding full proceeds on
almost stabilized properties (especially with respect to multifamily) if
there is a positive leasing trend. T-3 underwriting is no longer, "a must."

Broader property types:  Parking garages, self-storage, mixed-use, mobile home parks, owner-occupied credit, lodging and health care projects are some of the property types now in vogue in addition to conventional deals, namelymultifamily, retail, industrial and office assets. 

 Pricing is also very competitive for such properties and in some cases comparable to conventional types especially with low leverage requests.

Recourse:  Banks normally require recourse and most other lenders need "warm
bodies" on the carveouts of fraud, waste and mismanagement.   In select
instances, such lenders will partially, or fully, waive recourse for the
right sponsorships with strong credit histories, etc.

Flexibility:  Penalty-free partial payoffs, limited reserve requirements,
potential availability of extra proceeds based future performance, reduced
/capped legal fees, floor removals on floating rate loans are just some of
the negotiable options. 

Jeanne Peck, director of The Real Estate Capital Institute, states "Summer
money is hot.   Lenders are offering all types of deals and everyone's
asking for a second look so as to stay in the race with no signs of easing.
Borrowers rule..."
  

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 daily rate updates.

The   Real Estate Capital Institute(r)
3517 West Arthington Street
Chicago, Illinois USA 60624
Contact: Jeanne Peck, Executive Director
director@reci.com
www.reci.com