Thursday, October 12, 2017

Overall Mortgage Price Remains Tight, Says Real Estate Capital Institute


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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