The Real Estate Capital Scoreboard - March 2008

Chicago, Illinois, March 3, 2008 - Availability of funds and correspondingly widening mortgage pricing dominate the real estate finance front. While mortgage funds are available, many lenders retreat from direct originations, instead preferring to purchase attractively-priced, CMBS securities. As such, mortgage pricing highlights are outlined as follows:

• Overall Treasury Movement: Treasuries bounced 40 to 50 basis points during the month, settling about 25 basis point lower and 10 basis points, for 5- and 10-year terms respectively. Mortgage spreads widened dramatically, by as much as 50 basis points.
• Fixed-Rate Pricing: Loans are frequently priced based on floors rather than spreads/swaps. Most floors are in the 6%-or-higher range for 10-year permanent funds. Nevertheless, pricings reflect wide yield curve expectations, depending mostly on the funding source. For instance, life company spreads vary dramatically, starting about 230 basis points over comparable-term treasuries. A substantial gap exists thereafter as Wall Street CMBS deals are priced on the high-end of the curve starting at 500 basis points.
• Floating-Rate Pricing: 3% floor for Libor is surfacing as a variable rates yield protection tool, otherwise 170 to 225 basis points available to premium borrowers at banks. Real estate value-added floaters are priced 225 to 300+ bps over Libor. Recourse traded for lower leverage with banks.
• Forward Pricing: 60 to 90 days free, followed by two to five basis points per month, extending to 24 months total.
• Large Loan Premiums: 30 bps +/- premium for “jumbo” loans in excess of $100 million
• Interest Rate Swaps: In light of expected lower rates, sophisticated borrowers are exploring swaps. As result, interest rate hedging programs are gaining popularly especially for shorter-term loans of seven years or less.

The Real Estate Capital Institute’s advisory board member, Barry Moss, notes "In many instances, current CMBS pricing reflects a discount for any security that is in a ‘structure’ and is not reflective of the underlying real estate.” He adds, “The key is to do due diligence and understand the collateral, since depending on the quality of the underwriting and the specific vintage there can be issues.”

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The Real Estate Capital Institute® is a volunteer-based research organization, tracking realty rates data for debt and equity yields. The Institute posts daily (website) and hourly (telephone) updates.

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Nat Zvislo

Research Director

The Real Estate Capital Institute®

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