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| Jeanne Peck |
Chicago, IL - A Treasury market rally faltered after
the benchmark bond yield fell to the lowest in
three-and-a-half years
without breaking the all-time level set in 2012.
Global turmoil and
concerns about China and the Middle East quells any
fear of rising interest
rates, yet few investors fear a domestic recession any
time soon. Markets
hardly believe that the Fed will increase rates, as
long as crude oil prices
slump, acting as a key indicator for tame inflation.
Such news bodes well for commercial real estate
borrowing costs. With flat,
or even declining debt costs, the real estate
investors can enjoy continued
profitability.
Yet select markets are plagued by overbuilding, choppy
economic growth and obsolete inventory. A "Wide Divide" best describes
commercial real estate market behavior. Mortgage
pricing reflects this clear
divide - rewarding strong performing assets with cheap
debt, while punishing
secondary assets with much wider pricing and less
dollars than in the recent
past.
Funding
sources find enough "good" product, but can't run away fast
enough from marginal deals.
The pricing divide is very real, as demonstrated by
the dramatic retreat in
CMBS lending.
These pricing differentials have not been seen in about five
years. Spreads,
regulation or ballooning B-piece yields alone will cripple
the markets - but a lethal mix of all three does the
damage to any type of
public market securitized financing.
As further proof, REITS are shifting
to private markets to sell bonds, including seeking
secured loans rather
than lines of credit. The high-risk portions of the
debt stack are demanding
overall returns now in the 20% range, as B-piece
buyers pull back in search
of more yield clarity and many expect there to be
fewer of them over the
course of this year.
Conduit lenders are not alone, as
banks are also
pressured to widen pricing as conduit borrowers
scramble for alternative
sources.
Director Jeanne Peck of the Real Estate Capital
Institute(r), advises
"Investors want more return for perceived risk in
today's real estate
market. They
are taking a hard look at the quality of the assets, the
strength of the project sponsor for full leveraged
deals across all asset
classes."
For a
complete copy of the company’s news release, please contact:
Jeanne Peck, Executive Director
