 |
| John Oharenko |
Chicago, IL, April 1, 2019 – The Fed’s announcement to
keep rates unchanged sent 10-year treasuries to the lowest levels since the
end of 2017. Discussions of any rate hikes this year are
unlikely.
Fed projects one hike for next year, and a rate cut may be
justified should the economy start losing momentum. For the
foreseeable future, low mortgage rates are here to stay, as a strong job market
is tempered by cautious consumer spending and reduced business
investments.
Noteworthy commercial mortgage
pricing trends based upon leverage, term and rate structure are noted as
follows:
Leverage: Pricing
on lower leverage debt of, say 50%, is extremely attractive, starting at 140 to
160 basis points over longer-term treasuries, and even lower for ‘prime’
deals. Stepping up to 70%, spreads climb by nearly 50 basis
points. Full leverage loans of up to 80% (typically layered
with Mezz debt), include another 50 to 75 basis points. All in all,
permanent debt featuring a ten-year term is generally priced in the 4%-to-5.25%
range. Additional 15-20 basis points discounts/premiums available
depending upon project leverage and quality.
Term: The
ten-year term reigns as the benchmark timeline for permanent
debt. Given yield curve flatness, five-year debt is priced only 10
to 20 basis points lower. On the other end of the spectrum,
twenty-year debt is about 20 to 25 basis points higher. Term
elasticity is minimal, so longer-term debt remains desirable.
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:
CONTACT:
John Oharenko, Executive Director
The Real Estate Capital Institute®
900 North Campbell Avenue
Chicago, Illinois USA 60622
