Real Estate Capital Scoreboard® – September, 2016

Chicago, Illinois, September 1, 2016 – Another rate hike lurks in the shadows, but mortgage pricing shines brightly.  The “Triple-D” combination of Defense-Delays-Discounts hits the realty capital markets, creating some unique debt funding opportunities for lenders and borrowers alike, described as follows:

DEFENSE:  Institutional investors “play defense” by seeking lower yielding, more conservative mortgage debt.  Such sources prefer lower leverage loans in response to rating agency scrutiny, regulatory pressures and fear of providing too much debt during frothier realty market conditions.  Peaking property values keep many buyers from participating in any aggressive bidding wars, preferring to focus on fine-tuning existing assets for maximizing yields.  Such investors may also avoid any new acquisition opportunities by holding out for more moderate prices.

DELAYS:   The strategy of waiting for more stable market conditions may payoff, as investors return from the summer holidays.  Mortgage rates hover near their lowest levels in history, preventing borrowers from panicking about any dramatic increases. Meanwhile, some lenders (mainly life companies) postpone production activity until next year based upon additional allocations.  With such delays, funds should remain in ample supply as the conduit lending recovers and investors realize more attractive mortgage yields compared to similar risk-adjusted bonds.

DISCOUNTS:  Better pricing generates more competitive lending.  Multifamily properties eligible for “green” energy savings can capture as much as 5% additional loan proceeds and over 30 basis points discount in mortgage rates via agencies.  Lenders trying to balance their investment maturities offer additional pricing waivers for more “irregular” terms (e.g., 12-year vs. 10-year term).

The Real Estate Capital Institute’s® director, Jeanne Peck advises, “Regardless of the Fed’s rate increase threats, mortgages remain near the bottom.”  Ms. Peck further suggests, ”Low rates are here to stay for a while, due to insatiable global demand for domestic debt in all forms, including mortgage bonds.”

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