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The Real Estate Capital Scoreboard® – July 2007

realtycapital, 01 July 2007, No comments
Categories: Scoreboard

Chicago, Illinois, June 29, 2007 – Funding volume remains steady despite concerns about the subprime lending issues.  Currently, income-property permanent mortgage rates range within 6% to 6.75%, translating to pricing of 100 to 160 basis points above 5- and 10-year treasury yields.  In comparison to May, shorter-term rates increased by about 10 basis points and long-term by more than 20 points.  By the end of the month, the Fed’s decision to leave rates unchanged had a minimal impact on lowering rates.  As a result, mortgage rates are steadily trending upwards.

While rates are moving upward, the mortgage yield curve is behaving more “normally” as spreads widen between short and long-term bond maturities. Swap spreads remain tight as many debt investors flock to investment-grade CMBS notes as a more popular benchmark index.  Furthermore, swap markets are extensively used by many financial institutions (especially banks) for creating fixed-rate structures to directly compete with securitized loan programs.

The yield curve structure offers some attractive funding options.  In particular, among the best-priced debt options in the today is the forward-delivery mortgage.  Premiums as low as 10 basis point over the current rate buys as much as 18 months of rate-lock.  Such spreads are nearly 40 basis points lower than only a few years ago.

John Oharenko, an advisory board member of the Real Estate Capital Institute, notes “Borrowers still have plenty of funding options available for most property types.  From a historical perspective, leverage availability and underwriting standards are more liberal than any time during the past few decades.”

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Las Vegas, NV - February 6, 2010 - According to industry leaders gathering in Las Vegas this week, debt capital is readily available for 2010.  Optimism is in the air and the mortgage lenders are starting to offer more generous terms and conditions.  In summary, timing is excellent for select borrowers in securing debt based on the following conditions:  (1) Recovering economy, (2) Ample supply of capital and (3) Limited supply of financeable real estate assets.  The following highlights summarize the 2010 state of the realty capital markets including an overall outlook and overall funding program offerings:  Back to Basics:  As lenders workout of their legacy problems, new funding goals surface which are clearly more ambitious than 2009. Still underwriting of actual numbers w/o projections, yet inflation fears exist. Most lenders are Indifferent to spreads, but not competition. Valuing real estate properties in a declining market still a challenge. More allocation of funds available above target amounts if deal flow is of sufficient quality Underwriting Dynamics:  As has been the case last year, high-quality projects in major markets backed by excellent sponsorship and cash flow characteristics are most desired—especially based on low leverage of 65% of value.  Location/Property Types: Major MSAs strongly preferred for optional pricing and leverage.  Otherwise a substantially most costly financing with lower leverage. Preferred property types ranked in order:  (1) Multifamily, (2) Credit-Tenant lease of all property types, (3) Industrial, (4) Retail, (5) Office - however medical office ranks equal to Industrial and (5) Lodging. Pricing (Permanent Fixed-Rate Loan): Agency pricing for apartments starts in the low to mid-5% range for 5 year or greater term. Life company pricing starts mid-5% to 6% for 5 years or more term mostly targeted for commercial property pricing (agencies are more competitively priced) More entrepreneurial funds start at 7% or more targeting secondary markets, smaller fundings, older properties and lodging assets. Add a pricing premium of 25 to 50 basis points for loans below $5 million. Yield differential disappearing - typical ($5 to $50 million) vs. larger loans. Forward funds available up to a year based on 6 o 8 basis points premium per month.  Leverage: Above 65% LTV on a select basis combined with lower spreads. Values based on the lower of: (a) purchase price, (b) appraised value or (c) lender imposed capitalization rate.