The Real Estate Capital Scoreboard – January, 2007

Chicago, Illinois, January 2, 2007 – Rates steadily climbed throughout the month, rising more than 30 basis points – the largest monthly increase yet. The yield curve remains inverted for more than a year. LIBOR dropped by a couple of basis points, as short term rates hold firm.

As the New Year begins, incredible competition among capital sources assures ample funds for refinancing and new construction. In recent memory, borrowers seldom enjoyed such attractive terms. A note of caution: Slight weakening of the sub-prime consumer mortgage debt market may trickle into the commercial capital markets, translating to higher yields.

The year in review:

(1) Mortgage pricing based on treasury spreads continued on a downward spiral.
(2) Yield compression for nearly all property types evident, as entrepreneurial asset classes (lodging and office properties) attract pricing similar to more traditional venue (multifamily, retail).
(3) New construction profits squeezed by dramatically increased material and labor costs.
(4) An improving stock market posted double-digit gains during the year, offering investors more attractive options and posing a potential threat to the lower-yielding realty investment arena.
(5) Overall, commercial properties demonstrated sound supply-and-demand fundamentals. Lenders responded with extremely liberal underwriting terms and conditions.

OBSERVATIONS:

Nat Zvislo, research director of The Real Estate Capital Institute states, “2007 will be a very dynamic year, as capital markets continue responding to changing real estate fundamentals. Some market corrections will create more balanced risk-adjusted returns.” Furthermore noting, “Capital market price corrections are on the horizon.”

ABOUT US:

The Real Estate Capital Institute monitors realty rates data for debt and equity yields on a daily, monthly and annual basis. The Institute tracks benchmark rates including treasuries, bank prime and LIBOR dating back to 1990. Additionally, interest rates are updated hourly by calling the Real Estate Capital RateLine at 7RE-CAPITAL (773-227-4825).

# # #

Contact Information

Nat Zvislo

Research Director

The Real Estate Capital Institute

Contact via E-mail