Text Box: Sources: The Real Estate Capital Institute®, CNNMoney.com, US Federal Reserve. Disclaimer: The information contained herein is compiled from various sources deemed reliable, but is not guaranteed to be accurate and may contain typographical errors and/or be incomplete. Statements, opinions and estimates presented herein are subject to change without notice and are independent of sources mentioned. Quotation not permitted without written permission. Past performance does not indicate future results. Text Box: PERMANENT RATES/SPREADS Text Box: US TREASURY AND LIBOR RATES — MONTHLY AND ANNUAL Text Box: OBSERVATIONS Text Box: MORTGAGES Text Box: CAPITALIZATION RATES

ANNUAL TREASURY/LIBOR

MONTHLY TREASURY

Prime Rate

90-Day LIBOR

Short Term as of

Long Term US Treasury                          Mortgage Rates

5-Year  Note

10-Year  Note

Mortgage Spreads over Treasuries (basis points)                      

 

The Fed quantitative easing policies, the Euro monetary crisis, rising concerns about inflation in China and the overflow of capital into commercial real estate are all tampering with low mortgage rates.

Treasuries are rising and the Federal Reserve has minimal room to continue monetary easing, despite fragile economic conditions.   Throughout the past week, treasury rates have risen in excess of 3.1%, the highest since the end of May.  Rates are already bouncing along the bottom of the curve and can only be expected to move upward.

Just as Treasuries rise, mortgage spreads also widened -- by about 30 to 50 basis points; concerns loom over CMBS performance.  The Rating Agencies warn about the rapid reintroduction of pro forma cash flow projections as part of underwriting new loans.  To stay competitive, conduit lenders react by tightening underwriting and pushing back on leverage.  However, such lenders still offer cashouts and a wider spectrum of funding programs (e.g., combination permanent loan with mezz debt).

In the midst of such change, multifamily properties still capture the lowest rates.  Despite concerns about the future of agency lending, Freddie Mac and Fannie Mae are sought by investors and borrowers, alike.  Improving profitability, the government’s continued backing of the housing sector and no real short-term alternative solutions are reasons for guarded optimism for this funding sector to stay viable.

The lodging industry is the bright star in the commercial property sector and room rates rise and occupancy levels recover to pre-recession levels.  This sector is also supply-constrained as few investors dare to venture into new construction in the foreseeable future.  Lenders take note, selectively financing hospitality properties at pricing levels matching other more traditional commercial property types, although at leverage of 65% or below.

AUGUST

2011

The Real Estate Capital Scoreboard®

Text Box: KEY REAL ESTATE CAPITAL MARKET RATES—DEBT/EQUITY

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