Chicago, Illinois, May 1, 2015 – Headline news over the past month almost exclusively focused on the agencies. As both Freddie Mac and Fannie Mae hit near their allocation ceilings causing spreads to widen by at least 50 basis points. Competitors welcome this news as banks, Wall Street and life insurance companies eagerly look to fill the gap within the multifamily sector.  This changing realty capital funding landscape now has apartment debt pricing converging with other commercial properties.

As multifamily spreads widened, benchmark Treasury yields peaked to their highest levels since Mid-March (nearly 20 basis points this week alone), as bond markets expect the Fed to raise rates later in the year.   The end result generates a higher pricing range of 3.5% to 4% or more for the popular fixed-rate, ten-year term.

Mortgage rates are still relatively low, as lenders maintain ambitious funding goals.  With tighter mortgage pricing differentials, loan negotiations focus on interest-only vs. amortization, reduction of recourse (including carve-outs) and other less obvious underwriting factors.  In addition, lenders offer more flexible prepayment provisions, in some cases even waiving prepayment penalty for half the loan term.  [Many lenders believe future rising rates will negate concerns for early payoffs of today’s below-market-rate loans.]

In the face of rising rates, what about locking into longer term money at current pricing?  Now more than ever, many life companies offer terms in excess of ten, fifteen, twenty-year and longer term at barely noticeable rate premiums making such product/term combinations very attractive to long-term borrowers.  Thirty-five and forty-year money is also available through FHA/HUD and expect increased leverage levels of up to 85%, as this governmental agency ramps up for more competitive lending in the multifamily arena.

The Real Estate Capital Institute’s director, Jeanne Peck, believes, “Real estate fundamentals are very strong in many sectors, with lenders clamoring for product.   The agencies retreat is quickly filling up with alternative lender capital, but pricing is becoming more equal across various commercial property sectors.”