The Real Estate Capital Scoreboard® – May, 2022


Chicago, Illinois, May 1, 2022 – April represented one of the most volatile months in the stock markets, with drops of 1000 points in a single day.  Under such conditions, major benchmark rates continued climbing throughout the month as investors absorbed more negative news about inflation.  The 5-year and 10-year notes rose about 60 basis points.  The 5-year note also maintained an inverted yield curve over the 10-year note, although by a narrower margin.  That said, many economists fear a recession should Fed rates approach 5% to stifle inflation.

Lenders still maintain loan underwriting discipline, despite the abundance of capital.  Pricing varies, but 4% to 5% falls within the most common fixed-rate debt range.  Floating rate pricing starts at 250 basis points over select indices, increasing to 500 basis points for more entrepreneurial ventures.  Debt yields range 7% to 10%+ restricting higher leverage debt, even with aggressive equity pricing.  Loan-to-value stays within the 75% or less range.  However, up to 85% is available under pref equity programs.  Debt Service Coverage Ratios (DSCR) start at 110% for projects with provable cash flow increases, but 120% remains the standard.  Amortization schedules apply as underwriting restrictions, typically with 30-year terms.  Yet, lenders favor interest-only structures to stay competitive.

The Director of The Real Estate Capital Institute®, John Oharenko, notes, “Inflation takes center stage with investors based on ongoing expectations of higher rates.”

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