Wednesday, May 4, 2011

May 2011 - The Real Estate Capital Scoreboard issued by the Real Estate Capital Institute

 CHICAGO, IL,, May 4, 2011 - Real estate finance fundamentals are favorably gravitating towards borrowing as the triple play of lower treasury rates, compressing mortgage spreads and higher leverage levels fall into place. 

During the past month, five and ten-year treasuries dropped by more
than 15 basis points, while lenders slightly tighten spreads to remain
competitive as more capital floods the markets.  Also, with values
stabilizing for most types of income properties, funding sources are willing
to offer additional proceeds.  Current highlights include:

Overall rates - With mortgages rates at historically low levels ranging in
the 4% to 5.5% for longer term debt, borrowers prefer fixed-rate debt as pricing differential is barely significant vs. floating-rate formats.  That said, many lenders are removing floating-rate "floors" to remain competitive.

Hospitality is on a rebound with business travel on the rise.  Office and industrial demand is up, although at cautious levels.  Lastly, retail rebounds as slowly rising consumer leads to
better store sales and expansion plans for retailers.   Investors are noticing these trends as evidenced by bidding activities increasing substantially from last year and, in fact, approaching pre-recession levels for well leased properties.

As profitability returns and workouts are successfully addressed, banks are back seeking new business as well.  In general, lenders are more creative in looking at stabilizing assets, willing to bid earlier in the process to capture loans.  However, funding projects with ongoing leasing issues is still a challenge.

The Real Estate Capital Institute's Jeanne Peck (top right photo), suggests "expect more
liberal underwriting standards as lenders scramble for a limited supply of
quality loans." 

She also believes, "capital sources are certainly lowering  yield expectations, but sooner or later, more risks will have to be taken as
well; this may include higher leverage levels and lower debt coverage."

The Institute posts daily and historical benchmark rates including treasuries, bank prime and LIBOR.  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)

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