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| Jeanne Peck |
Chicago,
IL – Real Estate Capital Institute reports the commercial real estate industry
is driven by low interest rates, as attractive property values are maintained
through aggressive of both debt and equity capital.
And as property values
climb, in some cases peaking, money continues to flow into this investment
sector. Major trends in the CRE capital markets are noted below:
Stable treasury yields are helping. During the past couple of weeks,
rates
flattened out, as spreads between the five and 10 year treasury remain at
about 70 basis points, nearly half the difference from a year ago, but above
the average of 60 basis points.
about 70 basis points, nearly half the difference from a year ago, but above
the average of 60 basis points.
Such treasury behavior clearly shows how
monetary policy is influencing the slope of the yield curve. Strong
demand
for longer-term debt exists, as global investors look for "safe haven"
capital. A tightening of the monetary policy usually means a rising
short-term interest rates, typically intended to lead to a reduction in
inflationary pressures.
Declining Mortgage Spreads. The direct result of an oversupply of capital
is declining mortgage spreads. Mortgage yields are edging downward and about
10 basis points narrower than the average for the past three decades.
Except for lodging and special-purpose properties, rate premiums are almost
nonexistent among various property types, as improving market fundamentals
drive more demand for funding a wider variety of commercial properties.
Rationalizing Risk. Bullish optimism continues to chase down yield. While
profits breed competition, seeking excess profits can ruin it. Today's
markets clearly surpassed 2007 yield benchmarks with sub 4% annual returns
acceptable to many foreign investors driven by equity multiples, rather than
yield. New construction is a profit frontier measured by low teen returns,
as well as 100 to 250 basis points development yields versus exit
capitalization rates.
for longer-term debt exists, as global investors look for "safe haven"
capital. A tightening of the monetary policy usually means a rising
short-term interest rates, typically intended to lead to a reduction in
inflationary pressures.
Declining Mortgage Spreads. The direct result of an oversupply of capital
is declining mortgage spreads. Mortgage yields are edging downward and about
10 basis points narrower than the average for the past three decades.
Except for lodging and special-purpose properties, rate premiums are almost
nonexistent among various property types, as improving market fundamentals
drive more demand for funding a wider variety of commercial properties.
Rationalizing Risk. Bullish optimism continues to chase down yield. While
profits breed competition, seeking excess profits can ruin it. Today's
markets clearly surpassed 2007 yield benchmarks with sub 4% annual returns
acceptable to many foreign investors driven by equity multiples, rather than
yield. New construction is a profit frontier measured by low teen returns,
as well as 100 to 250 basis points development yields versus exit
capitalization rates.
However, the biggest profits are hidden in
repositioning and upgrading existing holdings, with returns often exceeding
50 to 80%. On the debt side, lenders and investors rationalize that the low
rates on CRE debt remain well over that of "risk free" investments and feel
they are compensated appropriately for investing in this sector. Lenders
are quick to institute floors if they feel base rates are dropping too
quickly or deeply, thus protecting a perceived downside to the lower rates
they offer.
Ms. Jeanne Peck, Director of the Real Estate Capital Institute(r), observes,
"Mortgage rates are tight across all varying loan terms driven by lower
treasuries and the overall perception that commercial real estate represents
safety versus higher yield."
For a complete copy of the company’s news release, please contact:
repositioning and upgrading existing holdings, with returns often exceeding
50 to 80%. On the debt side, lenders and investors rationalize that the low
rates on CRE debt remain well over that of "risk free" investments and feel
they are compensated appropriately for investing in this sector. Lenders
are quick to institute floors if they feel base rates are dropping too
quickly or deeply, thus protecting a perceived downside to the lower rates
they offer.
Ms. Jeanne Peck, Director of the Real Estate Capital Institute(r), observes,
"Mortgage rates are tight across all varying loan terms driven by lower
treasuries and the overall perception that commercial real estate represents
safety versus higher yield."
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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