Real Estate Capital Scoreboard® – July, 2019

Chicago, Illinois, July 1, 2019 – June was another excellent month for borrowers. Key rates moved down about twenty basis points. The ten-year benchmark treasury continues trending lower, flatlining in the two-percent range. Furthermore, lenders are holding spreads, resulting in permanent mortgage rates starting in the mid-three-percent range. Overall rates dropped by nearly a half percent this past quarter. A mid-year summary of lender profiles is as follows:

GSEs/HUD: Remaining among the most competitive sources for multifamily loans, agencies prioritize “green” and “affordable” loans. Agencies are also refining their “uncapped” and “capped” underwriting to reflect more balanced lending distributions. Watch for more announcements as the government remains committed to privatizing the agencies. Meanwhile, the FHA is targeting more loans located within Opportunity Zones, including faster processing timelines and reduced fees.

Life Companies: With no rate hikes in sight, Lifecos offer forward-delivery loans thru yearend, with minimal premiums. For lower-leverage debt priced in the lower-three-percent range (e.g., 60% LTV or less), life companies attempt to recapture yields, selectively increasing spreads by as much as twenty basis points. Rate floor discussions resurface but lack widespread acceptance, as too much competition still exists. Variable-rate loan demand is weak, as pricing starts at 225 basis points, climbing to nearly 400 basis points for more structured debt.

Wall Street: CMBS debt origination to date is slightly higher than last year. New origination is hampered by minimal refinance opportunities for stabilized assets. Meanwhile, debt funds battle within an extremely competitive lending environment, even on higher leverage loans for properties in transition

Banks: Like other mortgage lenders, banks scramble to find profitable loans in commercial real estate, while still maintaining underwriting discipline. This lending sector traditionally remains the most competitive source for construction and short-term debt, where payment flexibility matters.

The director of the Real Estate Capital Institute®, John Oharenko, advises, “Three words describe CRE lending: Competition. Competition. Competition!”

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