Capital Real Estate Market Investors See Major Benchmark Rates Climbing Higher

 

John Oharenko

Chicago, IL, May 1, 2002 -- April represented one of the most volatile months in the stock markets, with drops of 1000 points in a single day, reports The Real Estate Capital Institute®.

 Under such conditions, major benchmark rates continued climbing throughout the month as investors absorbed more negative news about inflation.  

The 5-year and 10-year notes rose about 60 basis points.  The 5-year note also maintained an inverted yield curve over the 10-year note, although by a narrower margin.  

That said, many economists fear a recession should Fed rates approach 5% to stifle inflation. 

 

Lenders still maintain loan underwriting discipline, despite the abundance of capital.  Pricing varies, but 4% to 5% falls within the most common fixed-rate debt range. 

 Floating rate pricing starts at 250 basis points over select indices, increasing to 500 basis points for more entrepreneurial ventures. 

 

Debt yields range 7% to 10%+ restricting higher leverage debt, even with aggressive equity pricing.  Loan-to-value stays within the 75% or less range.  

However, up to 85% is available under pref equity programs.  Debt Service Coverage Ratios (DSCR) start at 110% for projects with provable cash flow increases, but 120% remains the standard.  

Amortization schedules apply as underwriting restrictions, typically with 30-year terms.  Yet, lenders favor interest-only structures to stay competitive.

                                                           

John Oharenko, director of The Real Estate Capital Institute®, notes, "Inflation takes center stage with investors based on ongoing expectations of higher rates."

CONTACT:

 John Oharenko 

john.oharenko@reci.com

Executive Director

director@reci.com / www.reci.com

 

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