 |
| John Oharenko |
Chicago, IL
-- Even as the Fed increased rates by a
quarter point last month, benchmark five and ten-year treasuries held
steady. Experts have been predicting narrowing spreads and rising indices
for quite some time. For short-term, floating rate debt, such logic holds
true, but long-term rate behavior has baffled even the most astute pundits.
Investors continue seeking treasuries as financial protection against global
turbulence keeping long-term debt borrowing costs low.
Patience is paying off for borrowers waiting to lock into favorable fixed
rates, even in the face of more rate-hike threats. Mortgage pricing barely
changed as compared to the previous month. Spreads narrowed by about five
basis points from last month. Longer-term rates for conservatively
underwritten loans now hover in the lower four-percent-range; very low
leveraged debt may dip below four percent.
Given investor demand for purchasing mortgage debt, the best pricing
opportunities favor larger deals (e.g., $30 million plus). Lenders offer
more efficient underwriting and effective loan syndications for larger
deals. Interim loan programs, mainly bridge debt, is readily available from
banks and mortgage funds, as lenders seek competitive yields by climbing up
the risk curve. Furthermore, interest-only, non-amortizing debt remains
abundant. All in all, numerous capital sources will aggressively compete for
any reasonably viable real estate venture.
Since debt is very favorably priced, equity investing remains extremely
challenging, with no relief in sight. Yields are squeezed for nearly all
asset types and classes. Even so, many buyers starve for core product based
on the belief that core-plus and value-add investment returns are
comparatively low given the additional risk. On the other end of the
spectrum, opportunity ventures -- particularly new construction -- still
draw investor attention, but escalating construction costs squeeze yields to
paltry levels. Finding favorable returns continues to be the most
challenging responsibility of any investment manager.
The Real Estate Capital Institute's(r) director, John Oharenko, notes,
"Bargains are few and far between. Realty investing has risen to new
heights as a desirable investment class, both institutionally and with
private capital."
quarter point last month, benchmark five and ten-year treasuries held
steady. Experts have been predicting narrowing spreads and rising indices
for quite some time. For short-term, floating rate debt, such logic holds
true, but long-term rate behavior has baffled even the most astute pundits.
Investors continue seeking treasuries as financial protection against global
turbulence keeping long-term debt borrowing costs low.
Patience is paying off for borrowers waiting to lock into favorable fixed
rates, even in the face of more rate-hike threats. Mortgage pricing barely
changed as compared to the previous month. Spreads narrowed by about five
basis points from last month. Longer-term rates for conservatively
underwritten loans now hover in the lower four-percent-range; very low
leveraged debt may dip below four percent.
Given investor demand for purchasing mortgage debt, the best pricing
opportunities favor larger deals (e.g., $30 million plus). Lenders offer
more efficient underwriting and effective loan syndications for larger
deals. Interim loan programs, mainly bridge debt, is readily available from
banks and mortgage funds, as lenders seek competitive yields by climbing up
the risk curve. Furthermore, interest-only, non-amortizing debt remains
abundant. All in all, numerous capital sources will aggressively compete for
any reasonably viable real estate venture.
Since debt is very favorably priced, equity investing remains extremely
challenging, with no relief in sight. Yields are squeezed for nearly all
asset types and classes. Even so, many buyers starve for core product based
on the belief that core-plus and value-add investment returns are
comparatively low given the additional risk. On the other end of the
spectrum, opportunity ventures -- particularly new construction -- still
draw investor attention, but escalating construction costs squeeze yields to
paltry levels. Finding favorable returns continues to be the most
challenging responsibility of any investment manager.
The Real Estate Capital Institute's(r) director, John Oharenko, notes,
"Bargains are few and far between. Realty investing has risen to new
heights as a desirable investment class, both institutionally and with
private capital."
For more information, please contact:
John Oharenko,
John Oharenko,
Executive Director
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