 |
| 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
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