Real Estate Capital Scoreboard® – March, 2020

Chicago, Illinois, March 1, 2020 – The coronavirus conquers all capital market discussions, as the ten-year treasury dips to the lowest point in history, at 1.15%. In contrast to 1981, when rates peaked to over 15%, this milestone rate supports the longest bull market in history for government bonds. For further comparison, treasuries peaked at 8.89% (September 1990), and dipped to 1.48% (July 2016), averaging about 4.5%. Since 2012, treasuries regularly hovered in the 2%-and-below range.

Until more certainty returns to the marketplace, many lenders institute rate floors by widening spreads, with 3% serving as a common minimum rate. However, with record supplies of capital entering the real estate sector, intense competition for funding cash-flowing properties prevents floors from taking hold. As a result, borrowers continue taking advantage of historically unprecedented low mortgage rates, as lenders scramble in search of paltry yields.

Despite low rates, the commercial real estate industry enjoys healthy performance in most markets as supply and demand fundamentals remain in check due to overall underwriting discipline and rising new-construction costs. Under such conditions, property pricing also remains at historically high levels.

According to John Oharenko, director of the Real Estate Capital Institute, “Based on extremely low rates, markets sail into unchartered waters. Yet the waters seem calm with little signs of stormy conditions, at least for now.”

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