The Real Estate Capital Scoreboard® – January, 2022


Chicago, Illinois, January 2, 2022 – The new year shows promise of more favorable realty capital market conditions. COVID variants wreak havoc on ownership strategies, yet shrewd investors see fresh opportunities created by the pandemic disruptions of the past two years. Work-at-home, new shopping and recreational habits, and creative housing options continue emerging.

Even as the Fed promises future rate hikes, mortgage pricing remains at historically favorable levels. In particular, rate spreads for various risk profiles stay extremely tight, based on the following parameters:

Floating Rates: Mostly used for short-term fundings, floating-rate loans fall within the mid-to-higher-two-percent range. Lenders continue transitioning from LIBOR to other indices, including the Secured Overnight Finance Rate (“SOFR.”), translating to spreads starting at 200 basis points.

Fixed Rates: Permanent debt markets revolve around fixed-rate debt, with longer-term rates of five years or more barely priced higher than floating-rate deals. Most funding opportunities start in the lower-three-percent range. That said, five-year pricing rose closer to ten-year loans during the past few months, as inflation fears mount.

Ten-to-Twenty-Basis-Point Rule: Given tight pricing across the board, 10 to 20 basis point pricing premiums buy higher debt leverage (e.g., 70-80% LTV), longer-term, tertiary market deals, and other generally more aggressive underwriting parameters than in the past. Lenders look for more yield, often competing within such narrow profit margins.

According to John Oharenko, the Real Estate Capital Institute director, “2022 looks to be a bullish year, but investment discipline needs to be maintained as most opportunities show efficient pricing.”

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