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| John Oharenko |
Investors found the hike to yield mixed
results. Floating-rate debt clearly benefited, especially
prime-based loans.
On the other hand, permanent debt, based
upon the 10-year benchmark treasury, is only about 10 basis points
lower. In fact, this index, along with the 5-year treasury, is over
20 basis points higher than the beginning of last month.
The
Real Estate Capital Institute’s® executive director, John Oharenko,
suggests, "As the five and ten-year treasury spreads narrow, inverted
yield curve portend a recession is near.
However, the economy continues humming along for nearly a decade with no end in sight, at least in the immediate future.”
Borrowers
continue to enjoy some of the lowest rates within the longest post-war economic
boom on record. Mortgage spreads remain unchanged, as the capital
markets are flush with cash.
Lending
discipline remains intact, as banks and other financial institutions maintain
underwriting standards including, for example, 7.5% or greater debt yields and
leverage ratios of 70% for senior debt.
As
floating-rate debt pricing continues benefiting from a stable and low-interest-rate
environment, lenders incorporate mortgage language for replacing the LIBOR
index over the next couple of years. However, no clear index has
emerged yet.
All
in all, permanent loans are starting in the lower 3%-range for conservatively leveraged
loans based on 10-year terms.
Otherwise,
most loans are priced in the mid-to-higher-3% range. Rates of 4% (or
more) are reserved for structured debt with higher leverage, in tertiary
markets, etc.
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
Executive
Director
john.oharenko@reci.com
The Real Estate Capital Institute®
Chicago,
Illinois USA 60622
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