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| Jeanne Peck |
Chicago, IL – Real Estate Capital Institute (RECI) finds
that most recent reports on the economic outlook including a drop in durable
goods orders and lower corporate profit forecasts combined with a sluggish
global economy, help keep interest
rates at record low levels.
Since the holidays, treasuries moved dramatically downward,
more than 50 basis points for both the five and 10 year treasuries. Furthermore,
the 50-basis-point benchmark also applies to the yield curve, representing the
narrowing difference between the five
and 10 year notes.
How funding sources reacting to these dramatic interest rate
movements?
Once again, floors are being reintroduced, generally ranging
from 3% to 4% for longer-term funds.
And with such rates at absolute lows, lenders regularly offer
interest-only payments of at least a couple of years for 10 year deals with
full leverage (75%), or even full-term interest only for loans of 50% or less.
Some sources are loosening their prepayment standards and
offering more flexibility than was available in the past.
With such low overall interest rates, and continued pressure
for lower
spreads due to the oversupply of money, smaller lenders are
rethinking their real estate lending strategies as profits become more elusive.
At the same time,
larger banks and financial institutions are dealing with regulatory pressures
for reserving additional funds against any real estate collateral.
Expect life insurance companies and agencies to remain
competitive with ample funding allocations, but less competition from
smaller-scale securitized lenders.
With the concern over CMBS lenders loosening their underwriting
standards coupled with low rates, lenders will trade best rates for more conservative loan structure from CMBS and LifeCo
sources.
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In some instances CMBS lenders are competing with LifeCo
pricing on lower leveraged deals. As
higher-risk capital retreats due to declining yields, borrowers will turn to
lower leverage financing, being rewarded with more favorable rates.
Jeanne Peck, of The Real Estate Capital Institute(r),
jokes, "Now more than ever, predicting interest rate movements is at best
a lucky guess, at worst a futile exercise - gauge your time and projections
accordingly!"
For a complete
copy of the company’s news release, please contact:
Jeanne Peck
Executive Director
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