The Real Estate Capital Scoreboard® – October 2021

Chicago, Illinois, October 1, 2021 – The Fed steadily maintains rates at near-zero levels since the pandemic’s beginning.  However, the Fed recently announced plans to initiate hike rates by 2023, when inflation rises enough to justify such actions.  The markets responded with benchmark rates increasing by about twenty basis points during the past month.

Various fears keep real estate capital markets on edge. The Delta variant of COVID plays into property-type worries, particularly in the retail and hospitality sectors, which have recently seen some slowdowns.  Furthermore, economic concerns send more investors into the real estate sector, exacerbated by tight supplies of desirable properties.  Lastly, property owners fear rising expenses fueled by increasing labor and material costs, combined with higher energy prices.  Yet such fears create new opportunities, including the following: 

Attractive Yields:  Regardless of rising rates, ten-year treasuries remain bargain buys.  Lower-grade corporate junk bonds hover in the four-percent range.  As a result, yields five percent or more gain investor attention.

Short-term Funds:  Lenders eagerly scour both short and long-term debt deals.  Given the tight supply problem, the current lender demand for products shifts more emphasis on new construction and rehabs. In particular, bridge lenders’ abundance allows borrowers to hunt for competitively priced loans of five years or less.

Favorable Payment Format:  In addition to meager rates, borrowers enjoy interest-only payment formats allowing for more pre-tax cash flow as lenders compete to gain loans.  In comparison to amortized loans, such debt typically captures deals at 65% or less LTV ratios.

The Real Estate Capital Institute’s research director, John Oharenko, states, “Favorable financing terms with ample debt reaches nearly all sectors of the realty capital markets.  Borrowers seeking short and long-term debt have a plethora of options, like never seen before.”

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