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| 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
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