The Real Estate Capital Scoreboard - June 2007

Chicago, Illinois, June 1, 2007 – Real estate capital markets remain flush with cash. Overall permanent rates increased by about a quarter point, reflecting raising treasuries. Sort term rates, however, stayed unchanged in May as the Fed once again decided against any changes. Last but not least, many lenders increased spreads by 10 to 15 basis points as a result of residential market subprime concerns – yet some funding sources (e.g., life companies) kept spreads unchanged in order to stay competitive.

OBSERVATIONS:

• Fed keeps interest rates in check, fearing inflation risk. Recent economic slowing has not moved the Fed closer to a rate cut. Unemployment needs to likely rise to the ease Fed’s inflation fears. Rates remain relatively low as foreign investors continue buying treasuries as “safe haven” investments.
• The Las Vegas ICSC record attendance and overall optimistic tone indicates that investors remain bullish on the retail sector. On the other hand, spring retail sales were lackluster as gas prices and a continuing housing slump are dampening demand.
• Many banks are now offering completely non-recourse debt for short and medium-term debt to provide strong competition to conduits and life companies. Similarly, more conduits and life companies are offering construction loans combined with mini-perm debt to capture traditional bank funding opportunities.
• Despite low default levels for income-property loans, continued concerns abound for loosening underwriting standards.

According to John Oharenko, an advisory board member of the Real Estate Capital Institute, “Rates are still attractive despite overall increases in spreads and treasuries. Lenders demonstrate vast creativity in funding all types of loans.”

ABOUT US:

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

Contact via E-mail