Real Estate Capital Scoreboard® – October, 2020

Chicago, Illinois, October 1, 2020 – Another steady month of real estate mortgage markets, as indicated by relatively flat rates and spreads. Project quality and actual cashflow performance drive pricing. Leverage levels remain conservative by hovering at 65% or less for most commercial properties (except multifamily). Key capital market highlights are outlined as follows based on mortgage pricing ranges:

2.5%-to-3% range: Agencies continue to strongly dominate the multifamily pricing arena, regularly offering below 3% rates. Lower leverage levels approach the mid-2%-range. Life companies also fund loans at these rates for prime assets based on terms of 10 years or longer.

3%-to-3.5% range: Commercial banks and credit unions offer shorter-term fixed and floating rate loans in the lower-to-mid-three-percent range. Lenders’ higher cost-of-funds and more structured deals typify this pricing sector.

3.5%-to-4% range: Smaller loan sizes (below $5 million) and more challenging property types (e.g., retail) drive higher pricing for permanent debt. Mortgage conduits, debt funds, and life companies are active in this pricing segment.

4%-or-higher range: Rates above 4% serve as entrepreneurial funding programs based upon higher leverage and more cash flow uncertainty; Mostly funded by private capital sources.

The Real Estate Capital Institute’s director, Mr. John Oharenko, suggests, “Rates continue hovering at, or near, historical lows with no increases on the horizon. Borrowers focus on maintaining cash flow during the pandemic, as real estate investing stays in a defensive posture.”

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