The Real Estate Capital Scoreboard – December 2007
Chicago, Illinois – December 3, 2007 – The last month of the year demonstrates brisk activity as cash is readily available for attractive investment opportunities and lenders remain eager to fund higher-quality assets. However, borrowers will need to readjust their expectations of leverage to lower thresholds. And while sub-prime woes attract negative attention, commercial real estate and multifamily rental housing remain solid bets.
As for realty capital market activities, November was an extremely volatile month as investors busily sort out mixed economic news, including the following trends and highlights:
Mortgage market chaos continues sending investors to treasuries, hitting a two-and-a-half-year low during the month. Ten-year treasuries traded within a 60 basis point range, settling nearly a half a point lower than a month ago.
The inverted yield curve (short term rates being higher than long-term rates) has evolved to more traditional behavior patterns. Today, the yield curve is trending upward, translating to longer term rates surpassing short-term yields.
By mid-month, CMBS pricing became extremely capricious as mortgage spreads widened as much as half of a percent within a week, particularly with securitized lenders. In fact, many CMBS lenders discontinued quoting new deals until markets show more stability and liquidity. At the same time, agencies, life companies and other balance-sheet lenders raised their spreads by at least 20 basis points.
Certainty of execution is the most important variable in debt funding. As such, balance-sheet lenders are in the funding forefront.
Aaron Gruen, member of The Real Estate Capital Institute® Editorial Advisory Board comments, “The re-found recognition and re-pricing of risk will in the long run be healthy for market participants. In the short run, the heightened sensitivity to risk means borrowers will need to show the assumptions (fundamentals) underlying the transactions have a basis in the relevant space markets and can withstand predictable potential changes in market and operating conditions.” He adds, “As the de-leveraging process proceeds and markets become less volatile probably in the first half of 2008, additional liquidity and competition will return to the lending market"
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.
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- Research Director
- The Real Estate Capital Institute®
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