Real Estate Capital Institute Notes Mortgage Rates Shifted Upward for Nine Consecutive Weeks

Jeanne Peck

 Chicago, IL - Mortgage rates shifted upward for the

nine consecutive weeks.   The real estate capital markets welcome the new

year, anticipating additional rate hike throughout the year.  Last month's

25 basis point rate hike allowed the Fed dampen an improving economy backed

by steady employment growth.  This rate hike was the only one of the year

and second this decade.  Furthermore, the Fed published economic projections

revealing their desire to hike rates three more times in this new year.

Today's rate hike expectations have the following impact on capital markets:

Mortgage Rates:  Think "4%-handle" on any type of long-term debt, even at

lower leverage.  Current rates are at levels similar to the first quarter of

2014.  From a historical perspective, rates are within their lowest levels

of the past decade.  And spreads continue holding steady (or slightly

declining) depending upon individual lender appetite.  Most lenders have

reasonably robust funding objectives for this year, so pressure for tighter

spreads continues, especially for lower leverage and higher-quality CRE

financing opportunities.

Valuations:  A delicate balancing act of paying more for debt, but

potentially trading up for higher cash flow due to inflation keeps real

estate prices near peak levels.  Demand for credit-tenant, net-lease

properties via 1031 exchanges, as well as a limited supply of quality CRE

assets assures low capitalization rates within the current market cycle.

Alternatively, attractive purchase opportunities will emerge for those

properties requiring repositioning based upon fresh capital reflecting

higher rates than seen over the past few years.

Equity Risk:   Investors hope that Fed policies extend the currently

favorable economic cycle as long as reasonably possible, perhaps a couple

more years.  Recent business cycles (e.g., The Great Recession) created

overheated conditions with punishing results afterwards.  In the current

cycle, slightly higher interest rates dampen asset overvaluations.  Also,

recent financial regulatory pressures discourage lenders from allowing too

much leverage for riskier investments.  More so than ever, investors need

greater amounts of equity capital to backstop risk, leading to more cautious

deal-making.

Ms. Jeanne Peck of the Real Estate Capital Institute(r), predicts "Realty

capital market fluctuations bring attractive investment opportunities to

well-capitalized and patient buyers.  Motivated sellers will accept lower

prices, especially on deals that have been 'retraded' because of rising

rates."

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

Jeanne Peck, Executive Director

director@reci.com

www.reci.com