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| Jeanne Peck |
Chicago, IL - The Fed's
decision to maintain rates
during the mid-March
meeting illustrates that global economic issues
outpaced any fears of
domestic inflation, as mortgage markets and bond
investors are adding yield
premiums in anticipation of further hikes later
in the year. During the month benchmark five and ten-year
treasuries
modestly dropped by just
over ten basis points.
Early signs of "price
discovery" influence investor behavior and
expectations as first
quarter sales activity for commercial real estate fell
well below 2015 records
levels. Investors are taking a breather
from
bidding wars as debt
availability tightens due to conduit pricing
volatility. Meanwhile banks adjust loan exposures
slightly downward
pressured by new
regulations initiated this year. Yet
investor demand for
high-quality assets
continues unabated by foreign investors seeking safe
haven, even as domestic
investors retreat.
As spring begins, the
conduit markets are showing some signs of improvement
with Triple-A traches of
debt selectively trade over 30 basis points lower
than earlier this
year. Mortgage bond investors prefer the
improved
collateral offered in the
most recent issuances, as conduit lenders become
more selective with
choosing loan opportunities. Also, fewer
loan pools
have hit the markets in
recent months, creating limited supply of offerings.
Other noteworthy trends
within the debt markets include:
* Despite a Treasury rally with declining
rates, lenders are
establishing benchmark
floor rates for various types of properties. (e.g.,
3.75% to 4%).
* As CMBS players thread cautiously and widen
spreads, agencies, banks
and life insurance
companies are experiencing backlogs with loan requests;
the trend is shifting
towards a "lenders market" versus "borrowers market."
* Mortgage rates at very favorable levels
especially for lower
leverage debt, despite
tightening underwriting requirements.
* Current banking and conduit regulations
along with changes in public
market that pricing
further constrained mortgage capital formation. Expect
more nonregulated private
capital sources to fill the void, but at pricing
premiums, generally 5% or
higher for longer term fixed-rate debt.
* Pricing volatility for CMBS debt creates
widening of at least 75 to
200 basis points or higher
than similar bank and life insurance company
debt. Full transparency is
the hallmark for working with conduit loans for
helping to manage pricing
expectations in the midst of uncertainty.
The Real Estate Capital
Institute's(r) director, Jeanne Peck,
claims "Spring
brings more clarity to the
capital markets, as both debt and equity
investors tread
carefully."
She adds, "Tertiary
markets and more challenging properties will witness wider pricing, a healthy
phenomenon, as the markets return to more 'rational' underwriting levels."
For a complete copy of the company’s news release,
please contact:
Jeanne Peck, Executive
Director
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