Real Estate Capital Institute Reports Hot Summer for Debt and Equity Markets

Jeanne Peck

CHICAGO, IL  -The summer remains hot for the real estate

debt and equity markets, despite some cooling on the coasts. Even as prices

have peaked in some of the major primary markets, much of the country still

on track with record sales and financing volumes. Low rates, lack of quality

investment opportunities and overall strong cash flow performances keep

investors in the game at a frenzied pace.

After the surprising results of Brexit plunged rates to record-low territory

late last month, the Fed may abandon any efforts to raise rates and even

lower rates.  Even as the British European Union issues subside, overall

global malaise should continue to keep yields low with foreign investors

flocking to US treasuries for safety.

Persistently low interest rates assure that capitalization rates will also

remain low, translating to peak pricing with less attractive yields.

However, some markets are starting to see pricing levels stabilize, as

investors find minimal yield differences between various property sectors.

For instance in the case various types of "bed" properties, student housing,

senior facilities and traditional multifamily assets trade at much tighter

yield spreads than in the past. Any type of institutional quality

investments, longer-term internal rate of return benchmarks are in the

middle to higher single-digit range for core properties.

Will real estate investors flock to other more profitable investment

categories?  More opportunistic investments are advertising yields in the

lower to middle teens, also at historical lows, but not low enough to

discourage investing.  In other words, real estate yield risks are still

perceived to be lower in comparison to alternative stock market investments,

since deals are backed by "real" assets.

Now more than ever, borrowers are ambivalent to fixed-versus-floating-rate

debt. Overall mortgage rates dipped below 3% for shorter-term debt of five

years or less; longer-term fixed-rate debt is priced in the higher 3% to

lower 4% range. Due to a variety of factors relating to risk aversion and

regulatory concerns, many lenders favor "safety versus yield philosophy,"

offering lower rates as opposed to higher leverage (e.g. more than 65%

loan-to-value).

Jeanne Peck of the Real Estate Capital Institute(r) suggests, "Lenders are

accustomed to providing lower leveraged loans."  She adds "Just the same,

investors are becoming accustomed to keeping more cash in properties since

fewer other yield opportunities exist and prices stay at peak thresholds."

For a complete copy of the company’s news release, please contact:

Jeanne Peck

Executive Director 

director@reci.com

www.reci.com