CHICAGO, IL, Oct. 4, 2010 -- The Real Estate Capital Scoreboard, issued by the Real Estate Capital Institute, notes:
Benchmark indices declined about 30 basis points in September. However, mortgage rates taking a steady course as funding sources demand yield despite the recent movement in Treasuries.
Alternative debt product options (e.g., bonds) offer more competition keeping pressure on yields and pricing at current levels.
In summary, overall mortgage rates comfortably trade within the mid-4% range for longer-term mortgage featuring full leverage.
Money for real estate investing is bountiful and lot's of cash sits on the sidelines in search of the "right" deal, translating to the following trends:
- As market fundamentals continue slowly improving, banks and other financials institutions with excess real estate exposure are not selling assets very quickly, particularly properties with cash flow.
- The hottest income-property markets with the fastest recovery prospects include the coastal core markets and major 24-hour urban markets with Washington DC, San Francisco, New York and Southern California at the leading edge.
- Often times in the final bidding process for new deals, a handful of final bidders appear; but the disparity in pricing is wide among such finalist, indicating the investors still have vary different expectations regarding market fundamentals.
- While prime-property pricing is being bid up for new acquisitions, lenders restrict refinancing to loan-to-cost limits as "cashout" of equity is a key concern. Loan-to-cost restrictions hover at 75% or less, in most instances.
- The very best properties are trading close to replacement cost. More funds are considering new construction options for both debt and equity, especially for multifamily deals.
Lenders are still very conservatively underwriting most loans with lower leverage (e.g., 70% or less for commercial properties) providing the most common safety cushion for prudent sizing.
- However since rates are so low and debt service coverage are high, many lenders are willing to "loosen" underwriting standards to include longer amortization schedules, more flexible prepayment provisions and other such tweaks.
Jeanne Peck (top right photo), Executive Director of the Real Estate Capital Institute, notes that "The pent-up demand for higher quality real estate leaves a huge vacuum in the non-core property and market sectors." She adds, "Eventually, the older properties in tertiary markets may witness pricing appreciation and funding demand, as many investors are priced out of the core deals."
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, Executive Director
Toll Free 800-994-RECI (7324)
:director@reci.com> director@reci.com / <http://www.reci.com/>
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