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| John Oharenko |
Chicago, IL -- Last witnessed four years ago, the 3%
benchmark treasury is the biggest news this spring. Lenders and borrowersalike are adjusting yield requirements, as the Fed expects at least a couple
of rate hikes to stay within the goal of managing inflation in light of a
strong economy. Since pricing is still very competitive even at higher
levels, other trends take center stage, including:
Too Much Money Chasing Too Few Goods: A large variety of lenders leave
little elbow room for profitable returns. For instance, debt-fund pricing terms now comparable to major banks offerings last year, with mortgage spreads compressing 200 basis points or more. Lenders pick their spots with smaller banks locally capturing borrowers by offering flexibility and leverage. Life companies, banks and conduits are promoting more "one-stop" capital stack solutions including pairing mezzanine financing with
conventional senior debt. Agencies overwhelmingly dominate multifamily
lending with higher leverage loans featuring favorable pricing and
supplemental financing optionality. It's a downward race to the yield
bottom.
Blurred Investment Strategies: Core, core-plus, value-add and opportunisticinvestments are more difficult to segregate. Fund managers struggle with
tightened returns between various classes, as overall returns narrowed by at
least 300 basis points on the higher end of the risk spectrum. Some of the
highest yielding deals are now priced in the mid-teen yield range.
Meanwhile, core and core-plus yields trade in the middle-to-higher
single-digit range, with minimal room to move downward.
New Construction Deals in Demand: Since existing institutional-quality
assets provide minimal returns, investors seek new-construction
opportunities, especially for projects under way. Rising construction costs
restrict more development supply. Even as new construction cranes crowd
urban skylines with apartment buildings, concerns are muted as jobs follow
talent to center business districts at a record pace. Also, spec industrial
properties briskly sell, often at prices reflecting twenty percent or more
premiums over replacement costs.
Mr. John Oharenko, the Real Estate Capital Institute's(r) director,
suggests, "The party is over for extremely-low borrowing costs. However,
permanent [long-term] rates priced comfortably below six percent are still a
historical bargain this generation."
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, please contact:
Jeanne Peck, Executive Directordirector@reci.com /
opportunities, especially for projects under way. Rising construction costs
restrict more development supply. Even as new construction cranes crowd
urban skylines with apartment buildings, concerns are muted as jobs follow
talent to center business districts at a record pace. Also, spec industrial
properties briskly sell, often at prices reflecting twenty percent or more
premiums over replacement costs.
Mr. John Oharenko, the Real Estate Capital Institute's(r) director,
suggests, "The party is over for extremely-low borrowing costs. However,
permanent [long-term] rates priced comfortably below six percent are still a
historical bargain this generation."
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, please contact:
Jeanne Peck, Executive Directordirector@reci.com /
The Real Estate Capital Institute(r)
3517 West Arthington Street
Chicago, Illinois USA 60624
3517 West Arthington Street
Chicago, Illinois USA 60624
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