The Real Estate Capital Scoreboard™ - November, 2007
Chicago, Illinois – November 1, 2007 – The fourth quarter shows some signs of strength as lenders and borrowers alike have readjusted funding parameters, and more importantly, expectations. Ample capital is available as lenders expect large fund allocations for 2008.
October was a busy month and November should bring more excitement and predictability into the realty capital markets as evidenced by the following trends:
The Fed’s rate cut at the end of the month did little to change to overall momentum of the real estate capital markets. Overall long-term rates are about the same as a month ago.
Securitized lenders are gradually returning to the market, enticing borrowers with higher leverage by offering mezzanine with permanent funding first mortgages.
Mezzanine and layered financing pricing ranges tightened – the new range is within 12% to 16%.
Life insurance companies continue capturing permanent loan with pricing ranges of 140 to 180 bps over comparable-term treasuries for 10-year deals; 5-year deals usually feature higher spreads of about 20 basis points, some however are reaching annual allocation limits.
Borrowers are shying away from highly structured transactions with more complex prepayment program such as defeasance, in favor of yield maintenance or declining balance prepayment options.
Wider pricing of 20 to 50 basis points appears for non-traditional properties including hospitality, land and more entrepreneurial properties.
Sales markets are still active although sellers have adjusted price expectations to reflect new loan underwriting. High leveraged buyers are not currently able to compete, but equity remains abundant.
Transactions over $100 million will be harder to close through the end of the year due to financing hesitation and certain lenders reaching annual allocations.
The Real Estate Capital Institute’s advisory board member, Jim Postweiler, notes, “The Capital Market movements represent a correction and not a crisis. As more time passes and the mortgage pools clear, additional liquidity and competition will return to the lending market, probably within the first half of 2008"
The Real Estate Capital Institute ® 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.
- Contact Information
- Nat Zvislo
- Research Director
- The Real Estate Capital Institute®
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