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| John Oharenko |
CHICAGO, IL -- Real Estate Capital Institute reports that from the middle of last month, benchmark rates peaked to their highest levels since 2014. The 10-year treasury topped 3.05% and settled down by 15 basis points by month's end. The markets are bracing for as many as three more Fed rate hikes this year.
The Real Estate Capital Institute's(r) director, John
Oharenko, notes,
"Creating a 'perfect deal' from the financing perspective would be focused
on an urban, infill mixed-use project with a balanced affordable rental
component."
"Creating a 'perfect deal' from the financing perspective would be focused
on an urban, infill mixed-use project with a balanced affordable rental
component."
Policymakers target a two-percent growth rate, helping to create [and
prolong] the following trends:
Higher Rates and Spreads: Unlike earlier this year when funding sources
often absorbed rate hikes with tighter mortgage spreads, pricing is
widening. Overall rates are about thirty basis points higher than a month
ago. Furthermore, higher leverage loans (e.g., 85%) substantially widened
by about a percent. Today's rates are in the mid-four-to-five-percent range
for permanent debt of ten years or longer for lower leverage loans. Higher
leverage pricing starts with a five-percent handle.
Real Property is Real Safe: Even with rising rates, investors want solid
and safe yield alternatives to stocks. For the most part, commercial real
estate supply-demand basics appear balanced. Fundamentals remain solid
across property types, with some concern of overbuilding in select
multifamily markets. Credit-tenant properties attract the most demand,
followed by industrials, apartments, retail and office ventures. Prime
senior, student, self-storage, datacenter and lodging assets attract
competitive pricing that closely competes with traditional property types.
More and more, investors are turning their attention to infill and
transit-oriented locations, moving away from focusing on separate asset
classes, with mixed-use properties emerging as favored investments.
Higher Rates and Spreads: Unlike earlier this year when funding sources
often absorbed rate hikes with tighter mortgage spreads, pricing is
widening. Overall rates are about thirty basis points higher than a month
ago. Furthermore, higher leverage loans (e.g., 85%) substantially widened
by about a percent. Today's rates are in the mid-four-to-five-percent range
for permanent debt of ten years or longer for lower leverage loans. Higher
leverage pricing starts with a five-percent handle.
Real Property is Real Safe: Even with rising rates, investors want solid
and safe yield alternatives to stocks. For the most part, commercial real
estate supply-demand basics appear balanced. Fundamentals remain solid
across property types, with some concern of overbuilding in select
multifamily markets. Credit-tenant properties attract the most demand,
followed by industrials, apartments, retail and office ventures. Prime
senior, student, self-storage, datacenter and lodging assets attract
competitive pricing that closely competes with traditional property types.
More and more, investors are turning their attention to infill and
transit-oriented locations, moving away from focusing on separate asset
classes, with mixed-use properties emerging as favored investments.
Mission Money: Social investing gains momentum as financial institutions
and governmental agencies tackle a myriad of real estate issues. Investors
and developers work with municipalities to solve workforce housing demands
by negotiating favorable zoning, property tax relief, etc. Meanwhile,
attractive financing surfaces through availability of construction loans, as
well as higher leverage and lower interest rates. In exchange for favorable
long-term debt, owners frequently agree to maintain lower rents in
conjunction with the debt term.
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