Friday, March 4, 2011
CHICAGO, IL - As spring approaches economic recovery is delicate, but more encouraging signs are surfacing within specific realty product sectors and markets demonstrating job growth, according to the Real Estate Capital Institute.
For example, many warehouse markets enjoy higher occupancies as global trade rebounds. In addition, consumers are renewing spending, helping to ease oversupply concerns in the retail sector.
Of course, problems in the housing sector continue to translate to higher profits in most multifamily markets.
The Middle East tensions are favorably influencing lower mortgage interest
rates. During February declining treasury yields combined with compressing
mortgage spreads helped interest rates stay in the 4.5%-to-6% range for many
types of fixed-rate, longer-term loans.
Important trends changing the commercial property financing landscape
* Economic Outlook: The usual leader in economic recovery, the
housing industry remains depressed. Housing starts are nearly at a
standstill. Yet the economy is rebounding at a modest tempo with overall
growth pegged at about three percent. Such a pace is still below historical
rebounds following severe recessions. Nonetheless, the unemployment rate is
expected to dip below nine percent - still a favorable statistic for overall
income-realty markets. Also on the inflation front, increases are minimal
as economic recovery moves at a slow pace, benchmarked below two percent.
* Low Rates: In the short term, the Fed's active monetary decisions
are preserving rates at historically insignificant levels. However,
investors are nervous about longer-term consequences including global growth
and fiscal spending. If overall mortgage rates remain in the
mid-single-digit range, realty values will remain at healthier levels,
otherwise higher rates will lead to more valuation pressures.
* Demand for Quality: During the past three quarters, further
consolidation occurring as commercial realty markets bask in the abundant
supply of attractively priced debt capital. Although more equity is
required [and readily available, universal investor demand is unabated for
quality, income-producing properties. Second-tier assets continue to suffer
and a wide pricing differential exists between various quality classes.
* Restrictive underwriting: As Wall Street revives the CMBS platform,
mortgage delinquency rates reach new highs, hovering just below ten percent.
New loan origination underwriting is now more restrictive due to lingering
legacy issues. As a result, life companies, and other lenders void of major
legacy loans, are more competitive in this funding arena. In addition,
while pricing is relatively attractive, the net result across the board for
newly originated loans includes more restrictive covenants, mandatory
collection of reserves and escrows and loan covenants. Investors demand
adequate protections and want reduced risks in the event problems emerge.
The Real Estate Capital Institute's Jeanne Peck (top right photo), emphasizes, "Conditions are improving and optimism is in the air. New construction should selectively rebound as demand is unabated for high-quality, urban infill properties."
The Real Estate Capital Institute(r) is a volunteer-based research organization that tracks realty rates data for debt and equity yields. The Institute posts daily and historical benchmark rates including treasuries, bank prime and LIBOR.
Furthermore, call the Real Estate Capital RateLine at 7RE-CAPITAL (773-227-4825) for hourly rate updates.
The Real Estate Capital Institute(r)
3517 West Arthington Street
Chicago, Illinois USA 60624
Contact: Jeanne Peck, Research Director
Toll Free 800-994-RECI (7324)