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| Jeanne Peck |
Chicago, IL - Realty debt
markets pummeled with widening spreads as treasuries rates rise. Conduit spreads reached a two-year high, as
several mortgage pools crowd bond investors, creating temporary oversupply
conditions.
August was a wild roller
coaster ride for lenders and borrowers alike as ten-year treasuries
suddenly dipped to 2% later in the month on news of Chinese economic
woes. Within days, treasuries climbed by
about 20 basis
points. Meanwhile, led by the Agencies, many lenders
steadily raised spreads by five basis
points increments. Long-term mortgage
spreads are now about 20 to 50 basis
points higher than earlier in the spring.
Increasing spreads are
likely to continue due to expected ongoing market volatility. Borrowers and lenders are planning for a
rising rate tide. Domestic job growth and a
continuing economic recovery clearly portend higher rates with
inflationary pressure. However, as the
Fed threatens to
raise rates, a pattern of
negative global news dampens any rate hikes.
So for now, borrowers enjoy
temporary relief by staying with low-cost, floating rate debt.
All in all, permanent rates
for ten-year fixed rated loans range from 3.75%
to 4.75%, influenced
mainly by asset quality, leverage, debt coverage and
transaction size. Lenders favor more diverse property pools
with wider
tenancy profiles, hoping
to avoid credit risk, especially for larger loans.
Best rates are available
for lower leveraged, stabilized deals and for
multifamily projects with
some level of affordability in the rent levels
Competition is fierce and
runs across nearly all spectrums of lenders.
CMBS
lenders dominate higher
leverage loans; life companies offer best pricing at
leverage levels of 65% or
less; Agencies still win loans with
repeat-borrowers, while
banks flirt more and more with competitive
non-recourse debt. Lastly, debt funds tackle more bridge and
mezzanine
loans and other
opportunistic funding in search of yield.
Ms. Jeanne Peck, Director of the Real Estate Capital Institute(r)
observes,
"Rising rates are
finally upon us, after several false starts throughout the
year. That said, floating rates are still a
bargain, but for how long is
anyone's guess."
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
For a complete copy of the company’s news release,
please contact:
Jeanne Peck, Executive
Director
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