CHICAGO, IL - Washington's legislative impact on income-property real estate surfaces as the hot topic (e.g., Agencies fate, Frank-Dodd). Yet the action timeline is still not clearly defined, or not in the immediate future. Instead, the markets are still digging out of many problems supply/demand issues. Meanwhile, the ownership burdens ease as capital has returned to full with a plethora of funding options resurfacing as noted below:
- Capital sources offer more flexibility, including reducing fees, prepayment penalties and other restrictions to keep existing performing loans as well as winning new business.
- More bridge and subordinate debt lenders return to the funding arena. Senior debt lenders cautiously allow additional leverage, although subordinate debt is more carefully scrutinized including source and uses, escrows, default provisions and remedies, etc.
- The competition for larger loans is pushing a number of lenders to accept smaller deals.
- Most permanent loan spreads over treasuries staying flat since last fall, as funding sources have scant investment alternatives with similar risk profiles. The market prefers longer-term debt instruments.
- As for overall pricing, 5.5% often surfaces as a floor on ten-year funds for more typical leverage deals; rate floor are rare for lower leverage, conservative loans.
- While mortgage spreads stay the course, Treasuries are another story. Short-term obligations are at record-wide spreads, suggesting the markets are concerned about stagflation. Such pricing indicates that many investors believe the Fed will be more timid about raising rates, despite inflation fears, deficit spending and other global fiscal policy concerns.
Strong sponsorship with partially distressed portfolios voluntarily surrenders assets to lenders as if no strategic value play exists after all other reasonable options are exhausted. Depending upon the circumstances, lenders cooperate with borrowers as long as all parties act in good faith.
The Real Estate Capital Institute's director, Jeanne Peck (top right photo), suggests, "Recovering capital markets provide fuel for accelerating loan workouts. In general, funding sources are maintaining underwriting discipline; only truly troubled and ill-conceived projects will fail."
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)
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