Real Estate Capital Scoreboard® – August, 2018

Chicago, Illinois, August 1, 2018 – The continued trend of flat rates carries over from late spring.  The ten-year treasury note finally broke the three-percent barrier, the first time since the summer of 2011.  Such a relatively flat yield curve indicates that a market correction is on the horizon; however, unabated economic growth proves otherwise.

Similarly, mortgage spreads are still tight with permanent debt pricing at bargain levels, despite continued threats from the Fed of rising rates.  Yet spreads are expected to widen to more closely parallel rising corporate bond yields.

Debt capital oversupply assures that varies lending sources will continue to tighten spreads, while offering more competitive features as differentiators from the large field of players.  Below are various examples of how some lenders approach markets for snagging deals:

Got apartments?  Agencies are a good bet for both pricing and leverage, funding loans at a record pace.  Recent approvals to lend at higher leverage levels should keep the momentum strong for multifamily lending (e.g., 10% more leverage using 105% debt service coverage.)

Best pricing across most property types?  LifeCo pricing persists within the 150 to 170 bps range, and can even dip towards the 100-bps range for very conservative loans.  This funding group definitely is the price leader, as long as proceeds are not the main consideration.

Need loans of 70% LTV or more, and looking for a retail property lender?  Conduit pricing starts in excess of 200 bps for higher leverage, with about 50 bps premiums for even more dollars.  Also, greater comfort with retail properties as this sector shows signs of recovery from better integration of bricks-and-mortar stores with internet marketing.

Want lots of flexibility?  Debt Funds provide dollars with very creative terms, but at a price.  Creatively structured loans are offered in the 300-400 bps range.  Such funds are focusing more on mezz debt, seeking aggressive risk-adjusted returns.

Mr. John Oharenko, director of The Real Estate Capital Institute®, suggests, “Mortgages still are priced very favorably at about 5% or less for most types of deals.”  He adds, “Conservatively leveraged deals will be offered in the lower to mid-4% range.”

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