Real Estate Capital Scoreboard® – October 2018

Chicago, Illinois, October 1, 2018 – As highly anticipated, the Fed unanimously voted to raise rates by a quarter point last month, the third increase this year. The increase is part of eight consecutive rate hikes in just over three years. No rate-hike relief in sight due to a buoyant economy backed by a low unemployment rate staying below four percent, with no serious signs of slowing down along with tame inflation. A ninth rate hike is possible before yearend. And as many as three to four rate hikes are expected over the next couple of years.

With fixed-rate debt at the forefront, popular funding programs offered by major lending groups are outlined as follows:

Agencies: Agency green programs will continue expanding, as such debt represents about a quarter of their lending volume. Mezzanine programs gain significant interest, particularly for workforce housing, with as much as ten percent additional leverage available. Overall pricing starts in the 150-bps range over treasuries. As expected, floating-rate fundings are down, but still popular for value creation situations with pricing starting at 190 bps over Libor.

Conduits: Active in the higher leverage lending arena with pricing starting at 200 bps over swaps. Higher leverage loans above 75% LTV cost about 50 bps.

Life Companies: Mostly satiated, as annual funding goals on target. Staying competitive in the 145-165 bps range over treasuries on 65% LTV or less. Pricing premiums of 10 to 20 bps offered for loans of 15 years or longer.

The Real Estate Capital Institute’s® director, John Oharenko, advises, “Despite an impending inverted yield curve — a strong indicator of recessions — we are following a clear path of increasing rates based on current Fed policy.”

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