 |
| John Oharenko |
Chicago, IL - Last month's Fed rate hike was a result
of a stable and strong economy characterized by tight labor markets. As
short-term rates climb, long-term rates stay stubbornly low. Today's prime
rate, 4.75%, is often more costly than typical ten-year mortgages. As a
result, borrowers are rewarded with better pricing for securing long debt
instead of riding with floating rates. After adjusting for compressed
mortgage spreads and treasury rate hikes, mortgage rates are about the sameas January of last year. Given these "inverted term" mortgage marketconditions, the following observations are noted:
Volatility: Even as the Fed is expected to raise rates again throughout the year, global events dominate pricing beyond monetary policy control.
March's five and ten-year treasury movements in excess of 15 basis points
prove that less predictable rate behavior is now "normal." Also, the same
two treasury notes are only 18 basis points apart, historically out of
balance.
Tight spreads: Even as conduit pricing widened over recent weeks (nearly 20
basis points during the past quarter), relentless competition from other
sources and lack of product keep loan spreads from widening too much.
Mortgages still provide attractive pricing as compared to equivalent
corporate bond yields.
Creativity: Above and beyond pricing, lenders now generously offer
interest-only payments as part of the underwriting. Expect to see even more
"freebies" [or at substantially reduced costs] such as appraisals and
third-party fees incorporated into the loan closings. Bridge lending
programs prove to be popular forms of creative financing for value-add
properties with about a hundred funding sources targeting such
opportunities.
Variety: A multitude of lenders target different components of the capital
stack, offering many attractive funding choices. Banks stay on the short
end of the term curve; Life companies and conduits battle for longer-term
debt; Agencies target all types of multifamily opportunities and debt funds
provide higher proceeds. With so many sources, pricing consistency varies
as lenders continuously adjust offerings. Advertised pricing and terms will
often improve - at times dramatically-due to intense competition.
The Real Estate Capital Institute's(r) John Oharenko, recommends, "Loan
underwriting is evolving quickly as lenders juggle with finding winning
funding formulas. Commercial real estate is still a darling sector for
investment managers."
For more information, please contact: Jeanne Peck, Executive Director
director@reci.com
www.reci.com
of a stable and strong economy characterized by tight labor markets. As
short-term rates climb, long-term rates stay stubbornly low. Today's prime
rate, 4.75%, is often more costly than typical ten-year mortgages. As a
result, borrowers are rewarded with better pricing for securing long debt
instead of riding with floating rates. After adjusting for compressed
mortgage spreads and treasury rate hikes, mortgage rates are about the sameas January of last year. Given these "inverted term" mortgage marketconditions, the following observations are noted:
Volatility: Even as the Fed is expected to raise rates again throughout the year, global events dominate pricing beyond monetary policy control.
March's five and ten-year treasury movements in excess of 15 basis points
prove that less predictable rate behavior is now "normal." Also, the same
two treasury notes are only 18 basis points apart, historically out of
balance.
 |
| Jeanne Peck |
Tight spreads: Even as conduit pricing widened over recent weeks (nearly 20
basis points during the past quarter), relentless competition from other
sources and lack of product keep loan spreads from widening too much.
Mortgages still provide attractive pricing as compared to equivalent
corporate bond yields.
Creativity: Above and beyond pricing, lenders now generously offer
interest-only payments as part of the underwriting. Expect to see even more
"freebies" [or at substantially reduced costs] such as appraisals and
third-party fees incorporated into the loan closings. Bridge lending
programs prove to be popular forms of creative financing for value-add
properties with about a hundred funding sources targeting such
opportunities.
Variety: A multitude of lenders target different components of the capital
stack, offering many attractive funding choices. Banks stay on the short
end of the term curve; Life companies and conduits battle for longer-term
debt; Agencies target all types of multifamily opportunities and debt funds
provide higher proceeds. With so many sources, pricing consistency varies
as lenders continuously adjust offerings. Advertised pricing and terms will
often improve - at times dramatically-due to intense competition.
The Real Estate Capital Institute's(r) John Oharenko, recommends, "Loan
underwriting is evolving quickly as lenders juggle with finding winning
funding formulas. Commercial real estate is still a darling sector for
investment managers."
For more information, please contact: Jeanne Peck, Executive Director
director@reci.com
www.reci.com
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