Real Estate Capital Scoreboard® – September, 2020

Chicago, Illinois, September 6, 2020 – The stock market continues climbing, and realty mortgage spreads compressing based on record-low treasuries.  The Fed also announced that rates would remain low, even under inflationary pressures.  As a result, borrowers enjoy the “perfect storm” of low-interest rates for the foreseeable future.

Fixed-rate debt continues to gain the most attractive pricing, especially for five-year terms with low leverage (55% LTV or less).  Pricing starts in the 2.5%-range, climbing about a quarter-point for ten-year debt, and another quarter-point for leverage levels up to 80%.  These rates apply to stabilized multifamily assets controlled by proven sponsorship.  Otherwise, most other well-performing commercial properties achieve pricing closer to the 3% range based on a maximum leverage of 65% LTV.

Floating-rate, mezzanine, and other debt designed for new-construction or stabilization programs are priced at 3% or more, mostly via banks.   Life companies offer very diverse pricing, dipping below 2.5% for prime assets, but mostly hover in the 3-3.5% range.

In addition to overall realty capital market rates and trends, securitized lending returns to a more “normalized” state.  CMBS players underwrite new loans at 60% to 65% LTV with ten years interest-only.  For example, multifamily rates hover in the low three-percent range.  Office, industrial, self-storage, and retail-property pricing starts at 3.25% and reaching about 3.5% for more challenging loans.  Lodging remains problematic, as operators still work through COVID issues.

Mr. John Oharenko, director of the Real Estate Capital Institute, notes, “The Fed’s declaration to keep rates low helps force spreads downward, as fierce competition exists for stabilized loan fundings.”

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