Real Estate Capital Institute finds a capital markets shift is occurring in types of lenders, particularly in the multifamily sector

  

John Oharenko

Chicago, IL – Real Estate Capital Institute finds another month of relatively steady capital markets activity.  For the most part, mortgage pricing remains unchanged, but a shift is occurring in types of lenders, particularly in the multifamily sector.  

According to John Oharenko, director of the Real Estate Capital Institute®, "Most investors consider this late-cycle segment of the market a good time to exercise discipline when looking at new deals.  That said, interest rates are the least intrusive obstacle to obtaining a favorable capital structure."

As agencies reach their “cap” lending volume on conventional deals, other lenders are picking up the slack.  Additional notable market trends include:

Flat Rates/Spreads - In the past month, benchmark rates moved higher by about five basis points, a barely noticeable difference.  Meanwhile, mortgage spreads remain almost unchanged, as lenders aggressively compete for limited funding opportunities.

Saving “Green” - "Green" deals on affordable/workforce housing loans remain the most coveted funding targets with the agencies.  Pricing discounts of 20 basis points are typical, along with full leverage (e.g., 75% LTV) availability.  Projects most suitable for such programs are older vintage apartment buildings, generally constructed prior to the 1980s, where “green” upgrade possibilities prevail.

Highway Speed Limit Pricing – Staying within posted highway speed limit ranges also applies to mortgage leverage ranges of 55%-70% LTV [vs. MPH].  Best pricing offered for “slower” lower-leverage deals at 55% or less.  Life companies and agencies battle for such loan opportunities, dipping to spreads of 125 basis points, or less, in some cases.  “Higher speed” loan opportunities demanding debt levels of 65% to 75% are priced in the 165-185 basis point range.   The same price range for much of the past year, or so.

Ten-Year Term Rules – The optimum loan term for permanent debt continues to be 10 years.  Nearly no appreciable difference between seven and 10-year pricing.  In fact, five-year pricing can be more expensive, as the funding arena shifts from perm lenders to banks, based on higher cost-of-capital parameters.

The Real Estate Capital Institute® 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.  

CONTACT:

John Oharenko 

john.oharenko@reci.com

 Executive Director

director@reci.com / www.reci.com

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