donedeals-3: Capital Markets Improving but More Problems Ahead, RECI Predicts

Friday, December 3, 2010

Capital Markets Improving but More Problems Ahead, RECI Predicts

CHICAGO, IL, Dec. 3, 2010 - Real estate capital markets are

improving, yet commercial mortgage delinquencies continue to rise for over-leveraged properties still priced far above recovering values.

Statistics vary by property type, location, leverage and other underwriting metrics, but clear signs portend more loan performance issues for next year and beyond.

November's capital market performance ended with more rate increases as

5-year treasuries increased by over a half point and 10-year rates by over a

quarter point.

Shorter-term rates remained relatively flat. MBS spreads continue to widen as buyers of MBS remain on the sidelines and lender offerings increase as the year-end approaches.

On the positive side, the midterm elections, improving employment and a

stock market rebound -- all bode well for the commercial real estate sector

including the following observations:

* Sales momentum remains low, yet quality Core assets are very

competitive due to scarcity.

* Available distressed and foreclosed properties much lower than

originally anticipated as most banks still write down loans, perform workout and "blend/extend" in preparation of monetizing their holdings.

· However, 2011 and 2012 should offer more inventory for sale as banks aggressively move to clear their balance sheets with an improving economy.

* Single-tenant, credit properties enjoy dramatic price resurgence in

direct correlation with improving corporate performance, similar to

pre-recession levels.

* Banks are getting healthier but access to credit is still very tight

Observation:

Sponsorship net worth is an ongoing concern within the lending

community, especially with the Agencies. Lenders require at least 10% of

the loan amount in Liquidity (cash, marketable securities).

In addition, 401k, IRA and unused credit lines typically do not qualify as part of the liquidity test. Overall, net worth benchmarks include about from about 30% to 60% of the loan amount, depending upon the funding amount.

Jeanne Peck, (top right photo) Executive Director of the Real Estate Capital Institute, advises, "As we head into 2011, expect much higher transaction volume as financial institutions want to put past legacy loans behind them and reallocate their investments according to new business plans."

Peck also suggests, "Values for non-core assets will continue to suffer as more non-core assets are unloaded into the market."

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.