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| John Oharenko |
Chicago, IL – The Real
Estate Capital Institute notes Hurricane Harvey, along with North Korea's
missile adventures, prevent the Fed from instituting any rate hikes soon. As
expected, borrowers gain significant advantages by capturing low-priced debt
due to such market conditions.
The Real Estate Capital Institute's Director, John Oharenko, advises, "Even as short-term rates remain very attractive, the pricing gap compared to
long-term rates is very tight." He adds, "It clearly makes sense to explore long-term debt, but with favorable prepayment privileges -- the best of both
worlds."
Other notable observations by RECI include:
Low Inflation:
Despite threats of rising rates, key economic indicators show that inflation is at its
lowest point of the past two years. Last month the
benchmark 10-year treasury
bounced about 20 basis points, landing to the lowest levels seen under
the current administration.
Short-Term Pricing Indices: LIBOR reform takes the spotlight as far as
benchmark pricing indices.
British regulators announced the planned removal
of the LIBOR Index by
2021. Banks, agencies, insurance companies and other
financial institutions
have relied upon this index for decades. That said,
few lenders are concerned
since numerous indices emerge as probable
replacements, including
the Broad Treasury Repo Financing Rate (BTFR) and
the Bank Prime Rate. The
more laborious issue focuses on financial
institutions to modify
documentation that corresponds to the new indices.
New Construction: Many funding sources are flush with cash for making construction loans.
However, looming concerns about certain sectors of the
commercial real estate
market facing overbuilding [mainly multifamily], demand that banks and
other construction lenders tighten underwriting
standards -- or even
retrench from such opportunities. Yet the overall state of supply-and-demand is
reasonably balanced.
Retail and office
sectors are limited to
build-to-suit/preleased properties, while industrial development remains healthy, including
spec deals. Now more than ever, new construction
opportunities are funded
on a very selective basis, generally based upon lower loan-to-cost ratios
of 65% or less.
The Real Estate Capital
Institute(r) is a volunteer-based research organization that tracks
realty rates data for debt and equity yields.
The Institute posts daily and
historical benchmark rates including treasuries, bank prime and LIBOR.
For more information on this news release, please
contact:
The Real Estate Capital Institute(r)
3517 West Arthington
Street
Chicago, Illinois USA
60624
Jeanne Peck, Executive Director
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