Real Estate Capital Scoreboard® – May, 2019

Chicago, Illinois, May 1, 2019 – Another month of relatively steady capital markets activity.  For the most part, mortgage pricing remains unchanged, but a shift is occurring in types of lenders, particularly in the multifamily sector.  As agencies reach their “cap” lending volume on conventional deals, other lenders are picking up the slack.  Additional notable market trends include:

Flat Rates/Spreads – In the past month, benchmark rates moved higher by about five basis points, a barely noticeable difference.  Meanwhile, mortgage spreads remain almost unchanged, as lenders aggressively compete for limited funding opportunities.

Saving “Green” – “Green” deals on affordable/workforce housing loans remain the most coveted funding targets with the agencies.  Pricing discounts of 20 basis points are typical, along with full leverage (e.g., 75% LTV) availability.  Projects most suitable for such programs are older vintage apartment buildings, generally constructed prior to the 1980s, where “green” upgrade possibilities prevail.

Highway Speed Limit Pricing – Staying within posted highway speed limit ranges also applies to mortgage leverage ranges of 55%-70% LTV [vs. MPH].  Best pricing offered for “slower” lower-leverage deals at 55% or less.  Life companies and agencies battle for such loan opportunities, dipping to spreads of 125 basis points, or less, in some cases.  “Higher speed” loan opportunities demanding debt levels of 65% to 75% are priced in the 165-185 basis point range.   The same price range for much of the past year, or so.

Ten-Year Term Rules – The optimum loan term for permanent debt continues to be 10 years.  Nearly no appreciable difference between seven and 10-year pricing.  In fact, five-year pricing can be more expensive, as the funding arena shifts from perm lenders to banks, based on higher cost-of-capital parameters.

According to John Oharenko, director of the Real Estate Capital Institute®, “Most investors consider this late-cycle segment of the market a good time to exercise discipline when looking at new deals.  That said, interest rates are the least intrusive obstacle to obtaining a favorable capital structure.”

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