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| Jeanne Peck |
Chicago, IL -- While inflation concerns grow amid
signs of an improving economy, treasuries started moving upward to the highest levels in the month.
Investors are reacting to strengthening job markets,
even with global concerns about Russian sanctions and more recently,
Argentina's default.
Despite recently increasing rates, overall long-term mortgages are still priced within a favorable historical range of about 3.85% to 4.75%. Funding
pressure is high as lenders face fierce competition and loosened underwriting standards.
even with global concerns about Russian sanctions and more recently,
Argentina's default.
Despite recently increasing rates, overall long-term mortgages are still priced within a favorable historical range of about 3.85% to 4.75%. Funding
pressure is high as lenders face fierce competition and loosened underwriting standards.
In general, everyone agrees that now is the best time to be a borrower. As low rates and higher leverage loans are more common, loan negotiations are focused on the finer points of underwriting including:
* Choosing more flexible prepayment formats (e.g., yield
maintenance, defeasance) often available without any additional cost
premiums.
* The CMBS markets are guided by minimum debt yield requirements,
but are now selectively returning to debt service coverage tests to win
deals. 1.2X debt service coverage is now available as an underwriting
metric for higher-quality commercial properties.
* Choosing more flexible prepayment formats (e.g., yield
maintenance, defeasance) often available without any additional cost
premiums.
* The CMBS markets are guided by minimum debt yield requirements,
but are now selectively returning to debt service coverage tests to win
deals. 1.2X debt service coverage is now available as an underwriting
metric for higher-quality commercial properties.
* For low leverage loans, pricing is virtually
identical for different property types, as lenders are more comfortable with income-property in most asset sectors.
* Rules of thumb are less applicable as far as understanding
underwriting guidelines based upon types of lender types. For example, more
banks are waiving guarantee requirements, while life companies are offering
more short term, floating rate loans - a reversal of traditional roles.
* Recourse and carveout guarantees addressed with special-purpose
entities, environmental insurance and lockboxes.
* Net worth requirements and other select non-monetary loan default
provisions reduced or removed, depending upon leverage levels and
sponsorship financial strength.
* Rules of thumb are less applicable as far as understanding
underwriting guidelines based upon types of lender types. For example, more
banks are waiving guarantee requirements, while life companies are offering
more short term, floating rate loans - a reversal of traditional roles.
* Recourse and carveout guarantees addressed with special-purpose
entities, environmental insurance and lockboxes.
* Net worth requirements and other select non-monetary loan default
provisions reduced or removed, depending upon leverage levels and
sponsorship financial strength.
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* Strict underwriting discipline seen on
larger loans of $100
million or larger as less funding compete and rating agencies more carefully
screen such deals.
The Real Estate Capital Institute's director, Jeanne Peck, emphasizes,
"While rates are extremely favorable, expect some widening in mortgage
spreads as the next couple of months due to a very large volume of loans
going into securitization. Investors can afford to be more selective."
million or larger as less funding compete and rating agencies more carefully
screen such deals.
The Real Estate Capital Institute's director, Jeanne Peck, emphasizes,
"While rates are extremely favorable, expect some widening in mortgage
spreads as the next couple of months due to a very large volume of loans
going into securitization. Investors can afford to be more selective."
For
a complete copy of the company’s news release, please contact:
Jeanne
Peck, Executive Director
director@reci.com
director@reci.com
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