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The Real Estate Capital Scoreboard - April 2007


Chicago, Illinois, April 2, 2007 – Spring started with stable shorter-term interest rates, while longer-term rates increased to more historical norms. The difference between five-year and ten-year treasuries widened to about 10 basis points, instead of maintaining nearly identical levels since the Fed’s last rate increase in the summer. Furthermore, many expect rates to stay flat as the Fed continues to wrestle balancing inflation with less business spending and slowing housing markets.

Residential subprime mortgage concerns slightly dented commercial mortgage market yields. Pricing readjustments filtered through with increases of about five to 15 basis points. Nevertheless, income-property debt portfolios still show solid performance and overall spreads remain relatively low in comparison to earlier in the decade. Even in the shadow of uncertainty, loan markets demonstrate resiliency as lenders voraciously hunt for yield.

In fact, many analysts believe commercial mortgage-backed securities are well insulated from the subprime fray. These securities are based on diversified pools of properties. The individual pools are layered bond stacks -- the highest-rated tranches stay furthest from default risk. Moreover, in contrast to the housing market, the commercial real estate markets are additionally protected by indirect factors such as rising new construction costs (constraining new supply) and strong consumer demand for most types of space including shopping centers, office buildings, distribution centers, hotels and apartments. In many markets, owners are comfortably raising rents – particularly on the coasts and key inland cities.


John Oharenko, an Advisory Board Member of The Real Estate Capital Institute suggests, “Despite residential capital market woes, commercial real estate performance remains solid across the board.” He adds, “Given low mortgage and cap rates, investors readily contribute more equity to maintain favorable cash-flow yields.”


The Real Estate Capital Institute is a research organization that voluntarily tracks realty rate information covering debt and equity markets. The Institute posts daily and historical benchmark rates including treasuries, bank prime and LIBOR. Furthermore, interest rates are updated hourly by calling the Real Estate Capital RateLine at 7RE-CAPITAL (773-227-4825).

Nat Zvislo, Research Director
The Real Estate Capital Institute


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