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| John Oharenko |
Chicago, IL - The final
quarter of 2017 begins with
interest rate expectations
seen earlier in the year. Investors are
hoping
for more normalized
conditions less prone to shocks from global politics and
natural disasters. Considering such conditions, realty finance
trends
revolve around benchmark
yields, risk pricing and liquidity, as discussed
below.
Benchmark Yields: With longer term treasuries floating in the
2.25%-or-greater-range.
Fed watchers expect inflation at about the same
level, approximately
2.5%. Many hope the economy will run
along a steady
pace without any inflation
fuel. The Fed's objective focuses on
reducing
the $4.5 trillion balance,
with as many as four quarter-point rate hikes
during the next two
years. Consequently, mortgage pricing
expected to
steadily climb as well.
Risk Pricing: Overall mortgage pricing remains tight, as a
wide spectrum of
lenders compete for
long-term permanent loans within a historically narrow
range of 3.5% to 5%+ for
funding traditional property types.
Higher-risk,
value-add perm loans
generate pricing still below the double-digit range.
Mezzanine, preferred
equity and other "stretch" debt is freely available,
directly competing with
lower-yielding equity returns - often in the
higher-single-digit to
lower-teens range.
Liquidity: For any reasonable quality cash-flowing
asset, funds are readily
available from multiple
sources. With realty capital liquidity
at peak
levels, agencies, LifeCos,
banks, conduits and debt funds abound. Agencies
demand loans as year-end
goals need to be met, so multifamily borrowers
enjoy the best loan terms
of any asset class. LifeCos comfortably
meet
funding objectives, with
additional capital allocations available for next
year. However, the need to "reach" for
deals is less prevalent for this
year, as 2018 goals will
be announced. Banks cautiously monitor
HVCRE
requirements, but still
need deal flow for profitability. Wall Street
tightens spreads as to
more selective buyer pools seek higher-quality
offerings. Debt funds lurk at the upper end of the yield
curve, taking on
construction and
value-creation transactions.
Mr. John Oharenko, Director of The Real Estate Capital Institute(r),
suggests, "While
expectations are for more Fed rate hikes during the next
two years, the need to do
so is limited. Global uncertainly, and
other
events such as natural
disasters, drive debt markets more than economic
policies."
For more information on this press release, please
contact:
John Oharenko, Executive
Director
Real Estate Capital
Institute,
3517 West Arthington
Street
Chicago, IL USA 60624
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