Jean Darrow Peck |
Chicago, IL- As Fed has
decided to keep rates steady
again, mortgage spreads
have widened by more than 15 basis points as well.
However, steady rates
continue drawing back more bond investors into the realty capital markets,
including those seeking safe haven from global
turmoil.
As a rule of thumb,
shorter term loans of five years or less hover in the three-handle mortgage rate
range for leverage levels below 75%, and longer term fixed-rate debt will
start with a four-handle range, occasionally
dipping into the
higher-three-percent range for stronger credit underwriting. Floating rate debt pricing remains basically
unchanged.
With rates still at very
competitive levels, lenders focus more on sponsorship and funding
flexibility, rather than pricing for winning deals.
Banks, for example, will
waive recourse requirements and fix rates, in order to prevent clients from
moving to conduit or life company debt.
Alternatively, conduits
provide higher leverage (including mezz/pref equity)
and delve into tertiary
markets to gain market share. Life
companies offer
the lowest rates and
additional proceeds during the loan term to draw
lower-leverage, higher
quality properties. Lastly, agencies
provide a
combination of all of the
above for multifamily deals, particularly
affordable housing
ventures.
A potential Fed rate hike
is one of the hottest topics within the realty capital markets. Yet many investors and funding sources see
little change in strategic plans, should
rates rise as much as a quarter point.
Numerous players already believe
that rates hit bottom and are now on a steady rise, although not at any
dramatic levels. In other words, gradual
rate increases
are baked into investors'
plans for the foreseeable future.
Peaking values are another
topic most experts discuss. While prices
have reached, or exceeded,
pre-recession levels, finding profitable investments at "reasonable"
yields remains an elusive goal. Despite
record-pricing, investors still believe
more room exists for steadily rising values; inflation and
supply-constrained markets are hampered by escalating new-construction costs,
making existing properties good value propositions.
The Real Estate Capital
Institute's Jeanne Darrow Peck
suggests, "people are
now expecting steady rate
behavior, perhaps slowing down the pace of yield
compression."
Call the Real Estate
Capital RateLine at
7RE-CAPITAL (773-227-4825)
for free daily rate updates.
For a complete copy of the company’s news release,
please contact:
Jeanne Darrow Peck,
Executive Director