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The Real Estate Capital Scoreboard – September 2008


Chicago, Illinois, September 1, 2008 – Throughout August financial markets digested news about problems in the financial services sector. Real estate was no exception with Government Sponsored Agency woes capturing daily headlines. And while unfavorable news dominates, capital continues flowing, although certainly with more caution.

Major realty finance market highlights today are as follows:

• The 5-year and 10-year treasuries dropped just under 20 basis points.
• Fixed rate spreads for portfolio loans of all terms have increased by at least 20 to 40 basis points across most funding platforms including conventional and Agency debt.
• 65% to 70% leverage remains the maximum standard for permanent loans. Mezz funds bridge the [short-term] gap to about 85% with yields of 12% or more.
• Unless loans are committed and approved with rates and other terms locked, daily market volatility prevents many funding sources from “grandfathering” of loan terms under negotiation.
• Pro forma and projected income streams avoided in favor of actual income as underwriting benchmarks for existing project fundings.
• Hedge funds continue replacing banks for structured short-term floating rate debt.
• Loan syndications required for larger funds, as limited sources exist for loans of $50 million or more.
• Overseas banks (mainly European) active in providing larger-scale letter of credit and other financial enhancements.
• “RE” is the most common buzz realty finance word including remargining, renegotiating, rebalancing and repositioning.
• Sellers are avoiding placing the asking prices on properties, fearing loss of a potential buyer.
• Quality properties still in demand, secondary markets dramatically affected by lack of liquidity.

Advisory board member of the Real Estate Capital Institute, Skip Perry, notes “Low leverage begets low volume.” Adding, “Until funding sources are more comfortable with financial market stability, debt and equity players will stay close to the sidelines.”


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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