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November, 2008 - The Real Estate Capital Scoreboard"


Chicago, Illinois, November 3, 2008 – Market gridlock is the order of the day. Funding sources retreat, waiting for any signs of the bottom. While many pundits advise staying on the sidelines, brave investors are already hunting for opportunities.

Despite liquidity concerns, mortgage pricing still remains somewhat competitive compared to other business sectors seeking debt. Shorter-term, fixed-rate loans of five years are currently priced starting at 6.75% or more indexed to treasuries. Commercial (non-multifamily) floating-rate loans are priced from 6% . As for the more ubiquitous ten-year permanent loan, rates range from 7% or more.

Yet within these nearly frozen capital markets, some signs of life are clearly evident. As “cash is king,” the following capital market trends are noticeable:

1. All sectors of the industry are restructuring fee and profit expectations, expecting to provide more services at lower costs.
2. Developers shift to build-to-suit and consulting assignments for public and private construction projects.
3. Major brokerage houses are retooling to offer asset disposition assignments targeting financial institutions and governmental bodies.
4. Few, if any, investors and capital sources use income growth rates; instead, forecasting flat or declines income rates. As such, aggressive expense reductions are expected including labor and operating costs.
5. Wide permanent mortgage pricing gaps still exist between Agencies and conventional lenders. For instance, apartment properties enjoy pricing differentials of 100 basis points or more on 10-year term loans
6. About 80% of the conventional lenders are out of the market with funding products. However, “spot” funds sporadically surface as life companies receive small allocations from time to time.
Loans of $50 million or less are still financeable. However, larger loans are nearly non-existent as lenders are locked out of the syndication market.
7. Leverage remains below 65% as mortgage rates are often more expensive than equity yields.

Aaron Gruen, member of the Real Estate Capital Institute® advisory board, points out, “The United States will have a fresh President and Congress taking action to prime the economic pumps of consumers and businesses until the economy starts again to generate growth, resulting in fewer retail bankruptcies and reduced rate of unemployment.” He adds “Increased confidence will help the real estate capital markets to start functioning.”


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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