Real Estate Capital Scoreboard® – November, 2016

Chicago, Illinois, November 2, 2016 – Recent treasury rate and mortgage spread spikes show a combination of capital market uncertainty on monetary policy issues, the election and overall investor fatigue.  Yields are globally rising as investors reevaluate how much longer current monetary programs will work for controlling economic stimulus.  Pricing translates to at least a quarter higher than a month ago. In fact, treasuries jumped to the highest level since May.  Emerging commercial mortgage pricing trends include:

Stubborn Rates:  Bond markets flattening out.  Evidence mounts for policymakers to stay within the neutral zone, at least for the short term.  While inflationary pressures overshadow the American economy, latest figures favor key cost indicators staying in check.  Global markets still stymied by lackluster performance, keeping domestic rates tamed.  Current yields, for the most part, factor in at least one quarter-point rate hike.

Risk Retention Ignited:  This month Wall Street issued a considerable new batch of conduit loans.  Issuers continue to shuffle pipelines ahead of impending risk retention regulations taking effect on December 24, 2016. After maintaining a steady rally over the past six months, new issue spreads have begun to drift slightly wider.  With stringent loan loss requirements, smaller conduits exiting the markets, in favor of larger financial institutions that can absorb risk.  The net effect equates to about 15 bps widening since September.

Agencies Active:  Freddie and Fannie are managing their caps well and are still actively lending on multifamily assets. Both Agencies have released competing green programs that offer significant benefits in rate and proceeds should the property qualify. These programs can reduce interest rates by up to 40 bps.

Forward Planning:  With more flexible [balance-sheet] internal allocation goals, based compared to other permanent lenders sources, LifeCos budgeting funds for 2017. Key areas of competition include lower rates and forward-rate locks of up to one year

The Real Estate Capital Institute’s director, Jeanne Peck, boasts “It’s a double header ball game –  as the current economic recovery rolls along, at least for another year or so.  Simply too much capital in the system.  Expect more of the same market behavior, regardless of who takes the White House.”

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