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| John Oharenko |
Chicago, IL – Global virus concerns, trade wars, impeachment,
and the Fed’s steady course on interest rates top the news and scare the stock
market, says The Real Estate Capital Institute.
As a result, benchmark treasury rates plunged since the
beginning of the year by about 30 basis points. In comparison to a
year ago, after three rate drop by the fed, the 10-year rate hovers about 120
basis points lower, hitting similar levels witnessed the end of last summer.
The Real Estate Capital Institute’s director, John
Oharenko, notes, "For investors seeking yield, it’s a race to the
bottom.
" Also, global fears override any
strategic investment decisions, particularly for overseas
investors.
"However, strong real estate markets
fundamentals should drive more money into the sector, perceived as safe-haven
investments.”
Any
mortgage rate discussions focus on maintaining underwriting discipline rather
than reaching higher profit hurdles. Lenders scramble to find
quality loans, as overall funding activity levels tapper off.
That
said, the economy continues to outperform expectations, as the “Great Recovery”
continues into the new decade. And, mortgage rates stay attractive
for borrowers recapitalizing most types of debt.
Absolute
rates dip to the lower-3%-range for conservative leveraged loans based on
ten-year terms. Higher leverage debt prices about a half-point more
for reaching up to 80% LTV. That said, the most permanent debt stays
under 4%, except for debt with Mezz financing for tapping above the 80% level.
Equity
investors lament on finding proper risk-adjusted returns, understanding cap
rate compression endures.
Low-interest rate expectations drive
tighter pricing expectations, with core investors modeling mid-single-digit
returns in prime markets.
Otherwise,
core-plus, value-add opportunity deals selectively exist, requiring more
creativity and flexibility in property types and geographic areas to achieve
higher yields.
CONTACT:
John Oharenko
Executive Director
john.oharenko@reci.com
