Real Estate Capital Scoreboard® – March, 2019

Chicago, Illinois, March 1, 2019 – With inflation seemingly under control and economic conditions and the best job growth of the past half-century, global bonds yields are treading in very shallow waters.  Mortgage rates also benefit from trading in a narrow, again defying ongoing forecasts of rising rates.  As long as long-term rates stay low due to decreasing manufacturing production and tepid consumer spending, Fed rate hike threats seem distant.

As is the case for nearly a decade, commercial real estate markets are fundamentally sound.  Markets are in balance, but downside risks are surfacing even as the economy offers another year of solid performance with the following concerns hover over realty capital markets:

The “R” Word: Yes, “recession” is mentioned often, but still no signs of serious concern.  Pundits stopped using the baseball-inning analogy years ago, as many see the markets in record overtime mode, well beyond the traditional nine-inning game.  Like baseball, the markets don’t succumb to the clock.  Will this year prove to be another solid inning?

Yield Curve:  Last month the yield curve stayed in a tight range of 20 basis points for the five and ten-year treasuries – a similar pattern dating back to last fall.  A flattening yield curve usually signals worries about a moderating economy.  The insatiable global demand for ‘safe’ yields keeps long-term treasuries very competitively priced.  Concerns about slower growth are less pronounced in the current yield curve, but conditions could change if job growth, inflation, international trade or other unforeseeable variable(s) change the equation.

Product:  Investors and lenders are truly concerned about maintaining production volume levels comparable to 2016 to 2018 – record years for many players.  While funds are readily available, the lack of quality product for acquisition or financing poses significant issues for reaching reasonable investment goals.  Many believe the low-hanging-fruit deals are long gone.

“Capital flow is steady and ample, with little reason to expand because of a shortage of deal flow,” advises John Oharenko, director of The Real Estate Capital Institute®.

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