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| Jeanne Peck |
Chicago, IL - Real Estate Capital Institute reports most of
March, benchmark rates “marched” upward in step with the second Fed rate hike
prompted by continued economic growth.
Due to hawkish Fed statements, pundits expect rates to reach a 3%-handle
for longer term debt based upon the current trajectory.
In the face of rising
rates, and correspondingly lower financing demand, how are various funding
sources re-tooling to remain active? The
following summary tackles key players active in the permanent financing arena:
CMBS: Numerous borrowers with maturing conduit debt
are unable to effectively restructure their loans per currently stringent
underwriting requirements. Major
financial institutions and banks issue bonds, keeping the vertical strip and
maintaining strong relationships with horizontal strip investors per risk
retention guidelines. Pricing is
tighter, resulting from higher quality loan offerings. Leverage up to 75% is available for premium
deals, but 70% is more common.
Agencies: “Workforce” and
“affordable” are the two most important words when discussing best pricing and
terms for multifamily housing with the agencies. The GSEs are very focused on meeting their
housing goals, as well as energy efficiency to various “green” program
discounts. Discussions surface about
more creative options including construction loan and pre-stabilization
funding.
FHA/HUD: HUD continues to offer the most attractive
leverage and pricing. However, the
longer closing timeline is the major factor influencing borrowers seek
traditional financing alternatives. Some
of the more competitive seller/servicers now offer Bridge-to-HUD funding
options to allow more borrowers to use interim debt while the HUD funding
process is in play, expanding the possibilities for using this financing
vehicle for property acquisitions.
Life Companies: Armed with ample allocations of mortgage
funds, LifeCos offer the best rates, in return for providing lower
leverage. Lower-100-basis-point spreads
are surfacing, as spreads tighten between competing LifeCos. Longer term dollars are plentiful. Multiple players supplement are highlighting
their transitional bridge product.
Banks: The most traditional construction and
short-term lenders, banks, stay focused on compliance within a more restrictive
regulatory environment. Cautiously active on new construction with lower
loan-to-cost fundings generally reserved for the “best” customers. Pricing is still very favorable starting
spreads of 300 basis points over Libor.
Term loans up to seven years are available for balance sheet lending,
although interest rates swaps will be required to protect fixed-rate risk. Small regional and community banks may be
more aggressive on term and leverage, but generally limited to loans of $15
million or less.
Debt Funds: Helping borrowers with loans that the
aforementioned funding sources find challenging, debt funds provide higher
leverage needs and more structured fundings such as preferred equity,
mezzanine, and bridge loans. Pricing is
100 to 300 basis points or more versus regular sources.
Ms. Jeanne Peck, director of the Real Estate Capital Institute®, states
“Debt funds and smaller community banks are the sources to watch for more
flexibility, leverage as more creative underwriting solutions are needed,
instead of tighter pricing restricted by lower leverage.”
For a complete copy of the company’s news release,
please contact:
Jeanne Peck, Executive
Director
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