Commercial Real Estate Financing Insight Past News Letter
June 2024 Financing Market Insight
On June 11-12, the Fed voted unanimously to keep the benchmark target rate of 5.25%-5.5%, maintaining this two-decade high for the seventh consecutive meeting. This decision follows a better-than-expected inflation report, creating hope in the market for a potential reduction in interest rates. Fed Chair Jerome Powell indicated a continued conservative approach in these forecasts. The good news is that Powell noted an improving inflation outlook.
Despite the Fed's announcement, the stock market showed resilience, hitting all-time highs while bond yields slumped. The S&P 500 rose 1%, and Treasury two-year yields fell by 12 basis points to 4.7%. While the stock market is not directly connected to the Federal Funds rate, I still contend that the Federal Reserve may not lower rates while the stock market is at an all-time high.
How are the banks doing? Larger financial institutions remain stable, but some smaller ones have reached their lending capacity for CRE loans due to the disparity between older, lower-rate CRE loans and new bank products providing deposit or returns. When interest rates were at a historical low, lenders placed loans between 3% to 4%. Recently In order to increase deposits, banks began offering rates between 4.5% to 5% on CDs, money markets, and savings accounts which created a negative impact on their balance sheet. This situation has led some banks to merge with lenders holding more consumer debt. Some lenders opted to provide higher interest rates, attempting to offset this discrepancy.
While the Fed discusses the possibility of a rate reduction this year, the likelihood remains uncertain. According to the CME Group's Fed Watch tool, there is only a 4.7% chance The target rate will stay at current federal funds target rate by December.
How does this affect you? The credit market remains tight, but there are still valuable deals to be found. Recently, I quoted rates below 6% for a multifamily property with a 30-year amortization and 6.25% for a retail property with a 25-year amortization. Interest rates are expected to remain elevated for the foreseeable future. Even if rates decrease, they are unlikely to return to historical lows. The multifamily sector continues to offer the most favorable rates, followed closely by the industrial and retail sectors. Owner-user financing remains robust. As lenders' capital deployment strategies evolve, comparing multiple quotes will be essential for securing the best deal.
May 2024 Financing Market Insight
The commercial real estate interest rate continues to be heavily influenced by the ongoing battle with inflation. Jamie Dimon, CEO of Chase, recently underscored the persistent nature of inflationary pressures, suggesting that underlying inflation may not dissipate as quickly as anticipated. His remarks highlight the potential for sustained higher inflation, driven by a variety of forces. This persistent inflation poses significant implications for the Federal Reserve's monetary policy, which in turn affects mortgage rates.
During its May meeting, the Federal Reserve chose to maintain the federal funds rate at 5.25% to 5.5%, marking the sixth consecutive time rates were held steady. Fed Chair Jerome Powell acknowledged the hotter-than-expected inflation data from the first quarter, indicating that achieving the 2% inflation target will take longer than initially projected. Powell emphasized that the Fed’s current policy stance remains restrictive, aiming to curb inflationary pressures. Notably, Powell indicated that the likelihood of a rate hike in the near future is low, which provides some predictability for the commercial real estate market.
The resilience of inflation is evident in the recent economic data. The Labor Department reported a 3.5% year-over-year increase in the consumer price index (CPI) for March, surpassing the 3.2% rise in February and economist expectations. However, job growth showed a significant change, with only 175,000 jobs created in April, a notable decrease from the robust 303,000 jobs added in March. Despite the slowdown in job creation, wages continued to rise, with a 4.1% year-over-year increase in March. These factors contribute to a mixed economic environment, sustaining inflationary pressures while signaling potential cooling in the labor market.
The core personal consumption expenditures (PCE) price index, the Fed's preferred inflation gauge, remained elevated at 2.8% year-over-year in March, unchanged from February and above economist estimates. The persistently high core PCE indicates that inflation is deeply embedded in the economy, necessitating continued vigilance from the Federal Reserve. Consequently, mortgage rates, particularly for commercial real estate, are expected to remain elevated as the Fed maintains its restrictive stance.
Despite market speculation about potential interest rate cuts, as indicated by the CME FedWatch Tool, the overall probability of a significant reduction in rates remains low. The tool suggests a 35% chance of the federal funds rate falling between 4.75% to 5.25% by the end of the year, with only a 12.5% chance of rates remaining unchanged. This uncertainty underscores the importance of closely monitoring inflation data and Fed communications. For commercial real estate investors, the current environment demands careful consideration of financing strategies, as mortgage rates for multifamily loans are expected to remain in the range of 5.7% to 6.1% due to the prevailing economic conditions.
How does this affect you? Expect interest rates to remain elevated for an extended period, with the understanding that even if they decrease, they are unlikely to return to historical lows. The multi-family sector continues to secure the most favorable rates, followed closely by industrial and retail sectors. Owner-user financing also remains robust. As lenders' capital deployment strategies are constantly evolving, comparing multiple quotes will be your best strategy for securing the best deal.
April 2024 Financing Market Insight
The Commercial Real Estate interest rate trajectory continues to be uncertain, largely influenced by a sticky inflation rate and cautious signals from the Federal Reserve. Despite earlier predictions of six interest rate cuts for 2024, the Fed's approach continues to be "data-dependent," requiring specific metrics to justify cuts. The stubbornness of inflation continues to hinder potential rate cuts with many experts wondering if there will be any cuts in 2024.
The resilience of the economy and the expectation of a rate cut may be falsely inflating optimism from commercial real estate to the Stock market. Chair Jerome Powell has indicated that the conditions for rate cuts may take longer to materialize than anticipated, citing robust labor markets and steady inflation levels. San Francisco Fed President, Mary Daly, has cautioned against hasty actions, suggesting that current restrictive policies should be given time to yield results. Atlanta Fed President, Rafael Bostic, has underscored the need to remain open to further rate hikes if inflation remains stagnant, although he does not foresee this scenario.
Despite some cooling in the labor market, robust job growth and retail spending, along with an unexpected increase in March's inflation, suggest rate cuts might be premature. The Fed CME tool reflects this uncertainty based on the potential for rate cuts in December. The tool shows a 15.3% chance that the Fed target rate will remain between 525 and 550 basis points, a 35.7% chance it will be between 500 and 525 basis points, and a 32% chance it will drop to between 475 and 500 basis points. Furthermore, the 10-year treasury rate has increased by 36 basis points, from 4.29% to 4.65%, impacting the quoted rates in the commercial real estate sector. Overall, the evolving outlook suggests a delay in the anticipated interest rate cuts, with a more cautious approach from the Federal Reserve as it assesses ongoing economic trends.
How does this affect you? Interest rates are increasing slightly because of increases In treasury rates. Plan for interest rates to be higher for longer with the understanding that, even if rates adjust down, they will not get back to historical lows. Multi-family continues to lead the way, getting the best rates, with industrial and retail following close behind. Owner-user financing also continues to be extremely strong. Capital deployment by lenders is constantly changing so comparing multiple quotes will be your best bet for getting the best deal.
March 2024 Financing Market Insight
During the March meeting, the Federal Reserve maintained interest rates at their current level of 5.25% to 5.5%; the meeting was not solely focused on this decision but also on the Fed's projections for the future of rate cuts. Despite ongoing speculation and previous projections, policymakers at the Fed have maintained their expectation of rate cuts this year. A growing number of news outlits now envision fewer rate cuts this year. projected in December, suggesting a cautious approach to easing monetary policy.
News headlines are beginning to predict reality That rate cuts may not come as soon as initially predicted. I looked at the CME rate cut tool based on September Predictions There is only a 3.2% chance that the target rate will still be at 5.25 to 5 50. There’s a 44.8% chance that the rate will be 50 basis points lower and a 27.5% chance that the rate will be 75 basis points lower.
The decision to keep interest rates unchanged Demonstrates the central bank’s commitment to a target inflation rate of 2%. This cautious stance continues to be driven by economic indicators and a reassessment of inflation expectations. Fed officials have adjusted inflation forecasts upwards and acknowledge an increased risk of inflation. This view reflects a commitment to not alter monetary policy based on short-term data fluctuations.
Chairman Jerome Powell's commentary provided a clear insight into the Federal Reserve's strategic approach to tackling inflation while fostering economic stability. Powell emphasized, “Strong hiring in and of itself would not be a reason to hold off on rate cuts,.” This statement is particularly significant in the context of recent inflationary trends, as indicators such as the Consumer Price Index (CPI) and the Personal Consumption Expenditure (PCE) have reported increases for January and February. Powell's remarks indicate adjustments will be made with a comprehensive view of economic health rather than singular data points.
Debt providers are maintaining a conservative approach, preferring to lend on stabilized properties with well-capitalized borrowers. Lenders have the capital to deploy adjusting rates to attract more borrowers while continuing to closely monitor internal deposit limits. Competitive rates are particularly available for owner-user clients due to their larger deposit potential. While funds are accessible for value-add properties, private financing, and Debt funds are often the primary source for bridge and construction financing.
February 2024 Financing Market Insight
It seems that most Local as well as national news more than not place an optimistic stance on the economy. Unfortunately, the reality is less palatable Than optimism. On February 4th, 2024, CNN put out An article titled Fed chair Powel: The ‘” Time is coming” For rate cuts. If you read further, You will see “but ask Americans for a bit more patience in the central bank’s fight against inflation” Similar optimistic headlines could be seen from the Wall Street Journal. Fox Business put out a similar title:” Fed’s Powell says the time is coming to cut interest rates.” An hour after that, on February 5th, The New York Post reported Federal Reserve Chair Jerome Powers Sternly pushing back against eminent rate cuts the title of the article was “Dow plunges more than 350 points after Fed chairs rate comments spooks market.”
The CME group Upgraded Its Charts, changing its prediction for a May cut from 100% to 63%. It may even go down further. The Fed will lower rates at some point. With an increase in job cuts as well as A softer real estate market, I do expect some level of recession to take place. As further proof of market uncertainty, Brookfield, one of the largest owners of commercial real estate, Is raising cash to take advantage of a softer market. As a reminder, the change in the rate affects short-term interest rates immediately and does have less of an impact on longer interest rates, Such as the 10-year Treasury rate.
Where are rates going? We just must look at my favorite benchmark, the 10-year Treasury, On February 1st, it stood at 3.87%, but by February 5th, it had increased to 4.03%. Monitoring these treasury yields is crucial. It's noteworthy that there has been a significant influx into Treasuries since last October, coinciding with the rates reaching 5%. The response to the fluctuating market varies among lenders; some are conserving cash, while others continue their operations as usual. Securing the most favorable interest rate depends on the willingness of lenders to allocate capital at any given time.
How does this affect you? A slowing economy will lead to lower interest rates. Many debt providers are lowering rates to keep in step with the market. Plan your debt strategy with the expectation that interest rates will not get to historic lows again in our lifetime unless there's a major economic catastrophe. Lenders currently are providing rates between 5.8% to 7.5%, so finding the best lender for your project will have significant benefits to your bottom line. Borrowers with higher loan-to-value requirements should continue to expect their LTV to be constrained by DSCR due to continued higher interest rates. Expect lenders to conduct more thorough due diligence and scrutinize borrowers' qualifications.
January 2024 Financial Market Insight
Happy New Year! I'm thrilled to share some optimistic commercial real estate financial news as we step into a promising 2024. The recent drop in the 10-year Treasury Rate, coupled with some lenders beginning to reduce spreads, signifies an excellent opportunity for better rates. Notably, the Federal Reserve is considering deviating from its "higher for longer" stance, indicating potential rate cuts ahead. This shift is partly due to the availability of more precise data previously not available. Ideally, this extra data will help the FED lead us to an economic “soft landing.”
There's an evident statistical decrease in delinquency. In their December data report Credit IQ noted a drop in CMBS delinquency rates by 36 basis points to 7.17%. However, sectors such as office, multifamily, hotel, and retail have seen upticks in delinquency since November. This information, however, is misleading because the stats were skewed by the removal of two large industrial deals that previously were in distress.
On the treasury front, the 10-year rate dipped to 3.79% on December 27th but as of January 8th the rate has climbed to 4.01%. Not to worry, historically, interest rates tend to increase at the beginning of the year.
When will rates come down? The CME Group, a data analytics company, predicts what could be next for the Federal Reserve and when rate cuts may take place. The current federal funds target rate today is 5.25% to 5.5%. CME forecasts that, by the end of January, there is a 93.3% chance that there will not be a rate cut. During the March meeting, there's a 69% chance of a rate cut of 25 basis points. May is where it gets interesting; according to analytical models, there is a 100% chance of a reduction. There is a 24% chance that the target rate will be between 5% and 5.25%, a 58% chance that the target rate will be between 4.75 and 5% and a 16.5% chance the rate will settle between 4.5% and 4.75%. Keep in mind that the immediate impact of lower interest rates will initially affect short-term rates, such as prime.
While these developments are encouraging, it is crucial to proceed with caution. Historically, larger rate cuts have often led to recessions, barring two exceptions where rates subsequently increased after 12 to 18 months. For commercial real estate owners, lower interest rates might be on the horizon if the economy slows and funds are pushed from speculative investments to more conservative vehicles such as treasury bonds. This flow of funds change should push down treasury rates.
How does this affect you? A slowing economy will lead to lower interest rates. Many debt providers are lowering rates to keep in step with the market. Plan your debt strategy with the expectation that interest rates will not get to historic lows again in our lifetime unless there's a major economic catastrophe. Lenders currently are providing rates between 5.8% to 7.5%, so finding the best lender for your project will have significant benefits to your bottom line. Borrowers with higher loan-to-value requirements should continue to expect their LTV to be constrained by DSCR due continued higher interest rates. Expect lenders to conduct more thorough due diligence and scrutinize borrowers' qualifications.
Call me for more proceeds, a lower rate, and the best commercial and multifamily real estate debt available.
I wish you a prosperous 2024.
December 2023 Financial Market Insight
Happy Holidays! This month, I will touch on the potential for a reduction of the federal funds target rate next year. I will also share where inflation sits and the current stance of the Federal Reserve chairman. I will continue by discussing how rates have changed over the last month and a half and will finish by speaking about lender underwriting, how it has evolved, and how changes may affect you.
I've read many optimistic articles describing a possible reduction in the federal funds rate next year. The federal fund rate is adjusted based on current market trends, not on what will keep the economy moving forward aggressively. With retail sales continuing to stay solid and the stock market continuing to show gains, it is unlikely that a cut will be needed if there is a “soft landing”. If a soft landing is what the Fed is aiming for, there would be no need to reduce interest rates. The statement soft landing indicates no recession.
There is good news. At the beginning of the month, the Fed chairman said it was unlikely to increase rates further. Powell also said, “It would be premature to conclude with confidence that we have achieved a sufficiently restrictive stance or to speculate on when the policy might ease.” Even with positive indicators, the Federal Reserve will stick to its goal of getting inflation to 2% and plans to keep policy restrictive. The core inflation rate is 2.5% when annualized over six months, so we are heading in the right direction.
The 10-year treasury rate has had a fantastic ride in the last month. After hitting a seven-year high of 4.98% on October 18th, it began to slide downward, with the rate hitting a November high of 4.64% on November 10th. The 10-year treasury ended November at 4.22%. As of today (December 12th), the 10-year treasury rate is 4.22%.
More good news. Lenders have begun lowering rates based on treasury rate reductions. Be aware that several lenders continue to quote higher rates and require substantial deposits to fund loans. Many debt providers have continued to underwrite conservatively, quoting rates 100 basis points lower than the underwriting rate. This tactic is constraining the debt service coverage ratio (DSCR) significantly. This strategy is causing projects that would have qualified for a 70% LTV to sit around 50 to 60% LTV.
How does this affect you? Expect to bring more equity to the table for purchases. Proceeds for construction lending will be even more constrained than other debt products. When getting quotes for construction to permanent finance, expect that you may have to bring equity to the table because of the higher interest. Lenders have become concerned about the amount of consumer retail spending and expect it will not be sustainable at the current pace, deciding to limit exposure. Multifamily continues to be strong as it has the support of agency debt, and owner-user projects have many resources for debt, including non-SBA options. Borrowers should expect a lower loan-to-value constraint by higher interest rates and conservative underwriting practices that include adding additional spread to the expected quoted rate. Also, expect lenders to conduct more thorough due diligence and scrutinize borrowers' qualifications. I still have great resources to get around these issues.
November 2023 Financial Market Insight
November 2023 Financial Market Insight
I hope you're having a lovely day. There have been many changes in the commercial real estate lending market. This month, I briefly discuss the Federal Reserve's last meeting, the 10-year treasury rate roller coaster, and discuss an expert’s opinion of where the Federal funds target rate could go. Finally, I end with a Comparison of the 2008 crisis and today's economic issues.
First, A couple of pieces of good news: On October 19th, the 10-year treasury hit a whopping 4.98% (not the good news). The good news is rates came down considerably, as of today the rate is down to 4.42% This represented an impressive reduction of 56 basis points. I have received multiple communications from debt providers confirming that this reduction is trickling down to quoted rates. The Federal Reserve held rates steady at the last meeting on November 1st. Jerome Powell, the Fed Chairman, stated that the federal funds rate is expected to be higher for longer as we have a way to go to get to a 2% inflation rate, with inflation currently at 3.7% annually. According to the US Chamber of Commerce as of October 16th, there were 9.6 million job openings and only 6.4 million unemployed workers. Wages need to rise due to competition, and this is just one of several supporting data points for maintaining a higher for longer position.
Recently JP Morgan Chase Chairman Jamie Dimon, on CNN, stated that he thinks the federal funds rate could get as high as 7%. His biggest concern is the potential for long-term stagnation. He ended the article by stating that the consumer was in good shape. A 7% federal funds rate does not seem to be likely because the economic impact on floating debt would have significant consequences.
I frequently come across news that draws comparisons between 2008 and the present day. A recent article by Costar highlighted parallels between the last five years and the trajectory of the 2008 crisis. While there are indeed certain similarities, there are also noticeable differences. In 2008, banks stopped lending because of a mortgage-backed security issue in which subprime loans were being granted to homeowners with little qualification. Before the complete meltdown, large groups of investors began buying insurance that bet against mortgage-backed security debt. At its worst, the size of the insurance market, according to estimates, may have been three times larger than the total amount of the debt secured by homeowners.
Presently, property owners are grappling with a range of challenges. Much like the situation in 2008, there is a limitation on the issuance of debt. Today, we are contending with higher interest rates that are impacting commercial real estate, corporate debt, personal debt, and lenders' capital committed to long-term investment vehicles purchased when rates were lower. The issue for property owners is based on Simple math: if your commercial real estate has a $5 million loan floating or refinance debt moves from 3% - 6.7% (floating debt would typically be higher) and is based on 30 amortization payments would move from $252,970 a year to $387,166.78.
How does this affect you? If you have floating or existing debt that needs refinancing, get it done now! Borrowers should expect a lower loan-to-value constraint by higher interest rates and conservative underwriting practices that include adding additional spread to the expected quoted rate. Also, expect lenders to conduct more thorough due diligence and scrutinize borrowers' qualifications.
October 2023 Commercial Real Estate Financial Market Insight
I hope this email finds you well. I wanted to share some essential details impacting commercial real estate interest rates.
As expected, the Fed has increased the target rate by another 25 basis points; this is the 11th increase. This increase places the Federal fund's target rate at a 22-year high. The good news is that the Federal Reserve's economist has removed the possibility of a recession from their financial models. This positive development suggests a continued bullish outlook for the economy. The federal funds rate increases are expected to remain on hold; however, The Fed is data-driven and may have to increase rates further if the target inflation rate does not move from 3% to 2%. Rate cuts may not be on the horizon for some time, with many experts projecting the possibility of seeing them later in 2024.
Corporate profits have shown growth and strength due to long-term debt being locked into at very low rates and stock buyback programs. Consumer confidence is on the rise, which has caused a surge in treasury rates. The 10-year rate reached over 4% again on July 26th.
The sentiment among lenders is varied, with some exiting the market while others are re-entering it, offering lower spreads and reasonable rates for well-qualified buyers. Most lenders have owner-user financing options with higher LTV and good rates. On the investment side, Hospitality financing is beginning to rebound as occupancy rates continue to move in the right direction; retail financing has faced some pullback, despite high consumer confidence and spending. The office market is still experiencing lower occupancy and limited options for financing. Multifamily properties are enjoying the best rates; owners should realize that low cap rates will be difficult for lenders to utilize in the underwriting process in this higher interest rate environment. Industrial real estate remains of interest to debt providers. The best rates currently are for properties looking for debt between 3 million to 15 million.
How does this affect you? Lenders are offering competitive rates. Borrowers should expect a lower Loan-to-Value constraint by higher interest rates and conservative underwriting practices that include adding an additional spread to the quoted rate. Expect Lenders to conduct more thorough due diligence and scrutinizing of borrowers. Multifamily continues to have the most amount of financing opportunities as well as the most competitive rates. Hospitality has begun to intrigue some lenders as occupancy rates increase. Commercial property (non-residential) lenders are looking for properties that have longer-term leases to mitigate risk. Many lenders are also interested in owner-user properties and are willing to go up to 80% LTV based on the strength of the borrower.
September 2023 Commercial Real Estate Financial Market Insight
Good news: Goldman Sachs has lowered its expectation of a recession in the next 12 months from 20% to 15%.
To add liquidity to the markets, Fannie Mae recently changed The Small Balance Loan program cap, increasing the cap from $6 million to $9 million for all loans committed as of August 22, 2023. This change should relieve some of the stress on the small-balance multifamily market.
Inflation continues to be of concern for the Federal Reserve in particular; Consumer spending has shown remarkable resiliency, with key economic indicators pointing towards the persistence of inflation, raising questions about the Fed's future moves. At the beginning of 2023, the Fed predicted that by the end of the year, interest rates could be reduced or stay unchanged. New predictions have interest rates increasing further as inflation remains sticky.
The Treasury market continues to be volatile, causing lenders to change their lending strategies frequently. At the beginning of August, the 10-year Treasury was 4.05% and climbed to 4.34% on the 22nd, impacting interest rates. If I quoted a rate with a 250-point spread over the 10 years at the beginning of the month, the quoted interest rate would be 6.5%. On the 22nd, that same 250 basis points would translate to an interest rate of 6.84%. Given the current climate of caution and concerns about deposits, some lenders’ spreads have become even wider.
How does this affect you? There is plenty of reasonably priced debt if you know where to look. Borrowers should expect a lower Loan-to-Value constraint by higher interest rates and conservative underwriting practices that include adding additional spread to the expected quoted rate. Expect lenders to conduct more thorough due diligence and scrutinize borrowers' qualifications.
Multifamily continues to have the most amount of financing opportunities as well as the most competitive rates. Commercial property (non-residential) lenders are looking for properties that have longer-term leases to mitigate risk. Many lenders are also interested in owner-user properties and are willing to go up to 80% LTV based on the strength of the borrower.
August 2023 Commercial Real Estate Financial Market Insight
I hope this email finds you well. I wanted to share some essential details impacting commercial real estate interest rates.
As expected, the Fed has increased the target rate by another 25 basis points; this is the 11th increase. This increase places the Federal fund's target rate at a 22-year high. The good news is that the Federal Reserve's economist has removed the possibility of a recession from their financial models. This positive development suggests a continued bullish outlook for the economy. The federal funds rate increases are expected to remain on hold; however, The Fed is data-driven and may have to increase rates further if the target inflation rate does not move from 3% to 2%. Rate cuts may not be on the horizon for some time, with many experts projecting the possibility of seeing them later in 2024.
Corporate profits have shown growth and strength due to long-term debt being locked into at very low rates and stock buyback programs. Consumer confidence is on the rise, which has caused a surge in treasury rates. The 10-year rate reached over 4% again on July 26th.
The sentiment among lenders is varied, with some exiting the market while others are re-entering it, offering lower spreads and reasonable rates for well-qualified buyers. Most lenders have owner-user financing options with higher LTV and good rates. On the investment side, Hospitality financing is beginning to rebound as occupancy rates continue to move in the right direction; retail financing has faced some pullback, despite high consumer confidence and spending. The office market is still experiencing lower occupancy and limited options for financing. Multifamily properties are enjoying the best rates; owners should realize that low cap rates will be difficult for lenders to utilize in the underwriting process in this higher interest rate environment. Industrial real estate remains of interest to debt providers. The best rates currently are for properties looking for debt between 3 million to 15 million.
How does this affect you? Lenders are offering competitive rates. Borrowers should expect a lower Loan-to-Value constraint by higher interest rates and conservative underwriting practices that include adding an additional spread to the quoted rate. Expect Lenders to conduct more thorough due diligence and scrutinizing of borrowers. Multifamily continues to have the most amount of financing opportunities as well as the most competitive rates. Hospitality has begun to intrigue some lenders as occupancy rates increase. Commercial property (non-residential) lenders are looking for properties that have longer-term leases to mitigate risk. Many lenders are also interested in owner-user properties and are willing to go up to 80% LTV based on the strength of the borrower.
July 2023 Commercial Real Estate Financial Market Insight
Commercial real estate financing has undergone notable changes revealing a turbulent yet navigable commercial real estate financing marketplace. These include more conservative underwriting practices, reduced debt providers, higher federal scrutiny of lending loan portfolios, and increased sponsor scrutiny. The one bright spot is the Federal Reserve's decision to pause interest rates as inflation moves toward historical norms. This pause may be temporary and will be dependent on evolving trends.
ABR Commercial Mortgage. Conducted A recent survey of commercial real estate debt providers, categorizing them into three groups.
Active: Lenders actively engage in commercial real estate lending without significant changes in their operations or staff.
Partially Active: Lenders who have chosen to downsize their workforce and increase interest rate spreads.
Closed for business: Lenders who have temporarily closed their lending departments until further notice suspending commercial real estate lending activities.
What follows are additional examples of the changing Commercial real estate lending landscape. Larger Spreads have been reported across a portion of the market, leading to higher interest rates. Traditionally spreads have sat 150 to 250 basis points above the quoted index. Today some lenders are quoting rates between 250 - 400 basis points above the quoting index. The spread increase is the primary reason for higher interest rates. The 10-year treasury as of the third of July was 3.86% in November when quoted rates were more competitive the ten-year was 3.89%. During the underwriting process, many lenders continue the practice of constraining LTV by adding a spread above their quoted rate. Debt providers continue to limit exposure to office properties, and some have stepped back from financing retail properties.
During its last meeting, the Federal Reserve paused interest rate hikes. This decision demonstrates the Federal Reserve's recognition of the need for a cautious approach in response to prevailing market dynamics. The Federal Reserve anticipates the potential for two new rate hikes. However, the timing and magnitude of these hikes will be subject to ongoing economic conditions and assessments made by the Federal Reserve.
How does this affect you? First, some lenders are offering competitive rates. Borrowers should expect a lower Loan-to-Value constraint by higher interest rates and conservative underwriting practices that may include adding a spread to the quoted rate.
We provide commercial and multifamily real estate Debt.
Loan Size: $1,500,000 to $300,000,000
Property Types: Multifamily, Office, Industrial, Retail, Flex, Mixed-Use, Senior Housing, Student Housing, Mobile Home Parks, Hospitality.
Product Types: Permanent Financing, Refinancing, Construction, Bridge Lending, Mezzanine Debt, Private Debt, Portfolio Deb
Debt Providers: National, Regional, and Local Banks, Fannie, Freddie, HUD, CMBS, Life Companies, Credit Unions, Dept Funds
Location: We help provide commercial real estate debt in Oregon and Washington.
I would love to speak with you in more detail if you want more proceeds, a lower rate, and the best terms available.
Gary Winkler, CEO
ABR Commercial Mortgage
Lake Oswego Oregon
503-880-8779
www.abrcm.com
June 2023 Commercial Real Estate Financial Market Insight
Over the past year, the news has focused on rising interest rates. The commercial real estate spaces had more issues due to the complexity of the capital markets. Stability in multifamily has been strong because of access to agency debt. There is no denying that a lot of the turmoil is based on the disconnection between Buyers’ and Sellers’ property pricing and the vanishing equity in real estate that has occurred from higher interest rates. The good news is that we're getting closer to the Fed’s target inflation rate of 2% a year. Unfortunately, I expect another quarter-point increase at the Fed’s next meeting.
Market sentiment is fluctuating, with experts’ expectations of recession ranging from extreme to slight. Once inflation is under control, I expect a decrease in the federal fund’s target rate. This decrease should take place within the next 6 to 12 months. Let me be clear, I do not believe that interest rates will plummet again to the low-interest rates between 3% and 4%.
Fixed rates range from 5% to 7.8% for stabilized assets. Lenders offering fixed rates above 7% are not truly active in the market. Some debt providers charge upwards of 350 basis points above the quoted treasury rate. In contrast, less than six months ago, the typical rate would range from 175 basis points to 250 basis points for stabilized assets. These lenders are offering less than palatable rates utilizing this conservative approach, to be perceived as an active debt provider instead of as stepping back. Many smaller lenders have more commercial real estate debt in their portfolios than larger lenders. They require a conservative posture that includes higher federal scrutiny.
I continue interacting with lenders looking to place debt and have adjusted their interest rates accordingly. The 10-year treasury, for instance, is sitting at 3.689%. In October, the rate was as high as 4.24%. Agency debt for low-leverage multifamily provides the best opportunity. The best rate offered community is 164 basis points above the 10-year treasury.
There are capital providers who see this downturn as an opportunity. Properties with high LTV, needing to refinance, are finding shortfalls caused by commercial real estate price value reduction. The primary beneficiaries are providers of equity, mezzanine financing, private lenders, and debt funds.
How does this affect you? Finding lenders needing to deploy capital, produces the best terms and interest rates. The best rates continue for multifamily, industrial, and some retail. Expect that proceeds will be lower based on the change to quoted interest rates. The best rates for non-residential properties will be given to owners with well-qualified commercial tenants with longer lease terms. If you have a floating interest rate, refinancing should save you money. The treasury yield curve continues to be inverted, which may make longer-term rates more attractive.
We provide commercial and multifamily real estate Debt.
Loan Size: $1,500,000 to $300,000,000
Property Types: Multifamily, Office, Industrial, Retail, Flex, Mixed-Use, Senior Housing, Student Housing, Mobile Home Parks, Hospitality.
Product Types: Permanent Financing, Refinancing, Construction, Bridge Lending, Mezzanine Debt, Private Debt, Portfolio Deb
Debt Providers: National, Regional, and Local Banks, Fannie, Freddie, HUD, CMBS, Life Companies, Credit Unions, Dept Funds
Location: We help provide commercial real estate debt in Oregon and Washington.
I would love to speak with you in more detail if you want more proceeds, a lower rate, and the best terms available.
Gary Winkler, CEO
ABR Commercial Mortgage
Lake Oswego Oregon
503-880-8779
www.abrcm.com
May 2023 Commercial Real Estate Financial Market Insight
I wanted to update you on recent developments impacting Commercial real estate interest rates. The Federal Reserve has continue the fastest rate hike in history by increasing the federal funds rate by 25 bps. Turmoil in lending markets continues with First Republic closing its doors. The economy continues to slow, and capital market uncertainty continues to impact commercial lending interest rates.
First Republic opened this week under JP Morgan and is the second-largest bank failure in history. First Republic's primary issue was that 68% of deposits were larger than the federally insured $250,000 limit, meaning the federal government would not guarantee a large portion of deposits. This issue led to the panic that caused the failure of FRB. The first two banks to fail recently had similar problems - 97% of Silicon Valley's deposits were above the insured limit (bad management also played a role), and 90% of Signature Bank's deposits were uninsured.
We are on the right path, with the most recent commerce department report showing domestic product growth had slowed down in the first quarter to 1.1%. The federal reserve plan is working. Even with companies downsizing, a recent study by the Bureau of Labor Statistics shows that there are two jobs for every unemployed worker. This issue forces employers to increase wages to attract candidates, supporting inflation. The jobs report is coming out on Friday, so this discrepancy may change.
Pricing is primarily being affected due to an increase in spreads many banks implemented to reduce risk. Recently Commercial real estate reporting is focusing on delinquency and vacancy of office properties. This reporting is unintentionally impacting interest rate pricing for other product types. Multifamily and Industrial continue to be desirable. Multifamily has begun to have a slight uptick in vacancy, and there is concern about how stable retail will remain if a recession takes hold.
We provide commercial and multifamily real estate Debt.
Loan Size: $1,500,000 to $300,000,000
Property Types: Multifamily, Office, Industrial, Retail, Flex, Mixed-Use, Senior Housing, Student Housing, Mobile Home Parks, Hospitality.
Product Types: Permanent Financing, Refinancing, Construction, Bridge Lending, Mezzanine Debt, Private Debt, Portfolio Deb
Debt Providers: National, Regional, and Local Banks, Fannie, Freddie, HUD, CMBS, Life Companies, Credit Unions, Dept Funds
Location: We help provide commercial real estate debt in Oregon and Washington.
I would love to speak with you in more detail if you want more proceeds, a lower rate, and the best terms available.
Gary Winkler, CEO
ABR Commercial Mortgage
Lake Oswego Oregon
503-880-8779
April 2023 Commercial Real Estate Financial Market Insight
Commercial real estate, along with the financial system, has been experiencing an increase in turmoil over the past two months caused by the rise in interest rates. The Fed has raised rates nine times since March last year to slow inflation. Unfortunately, it has caused some lenders to adjust underwriting standards. I thought it would be a good idea to reach out to some of my debt providers to find out what’s changed and share some of the insights that I’ve received.
I contacted 60 lenders to ask how their underwriting has changed. The response was different from what I had expected. Only a small number of banks have pulled back either to reduce Loan to deposit ratios or to increase liquidity to buy other banks.
Exceptionally few lenders have pulled entirely out of the market. Most property types and asset classes seeking Debt can find a home. A property’s Location may limit the number of choices available for borrowers, with many debt providers sticking to larger Markets. As Regional banks pull back, larger national banks have stepped up to fill the void. Fannie and Freddie's products still offer great rates for multifamily, specifically when rents are considered “affordable.” Deposit stability remains an issue. To keep lending ratios to deposits stable, some lenders that in the past were transactional have begun to require deposit relationships to move forward on a loan. Historically, some debt providers would underwrite loans at rates higher than quoted rates. More lenders are adopting this strategy as a risk-reduction measure, which results in higher equity requirements for borrowers.
Regional banks with less than 250 billion in assets are responsible for 80% of outstanding bank loans. While some smaller banks are pulling back, larger banks are becoming more aggressive in picking up the slack. According to a recent study by the Social Science Research Network and posted in the New York Post that 186 banks across the country
could potentially fail; however, that is far below the number of failures that took place during the “Great Recession.”
How does this affect you? Due to stricter underwriting standards, lower DSCR standards, which helped facilitate a higher LTV, will not be as effective. The best rates still will be for multifamily and industrial. Good construction debt options are available; however, proceeds will be lower based on the new interest rates. Properties outside major MSAs will have fewer debt provider choices than two years ago. Strong Commercial tenant financials and longer lease terms will be important when looking for longer fixed-term loans. If you have a floating interest rate, refinancing should save you money if the Federal Reserve continues to increase the Federal Funds rate, primarily due to the stickiness of current inflation.
We provide commercial and multifamily real estate Debt.
Loan Size: $1,500,000 to $300,000,000
Property Types: Multifamily, Office, Industrial, Retail, Flex, Mixed-Use, Senior Housing, Student Housing, Mobile Home Parks, Hospitality.
Product Types: Permanent Financing, Refinancing, Construction, Bridge Lending, Mezzanine Debt, Private Debt, Portfolio Deb
Debt Providers: National, Regional, and Local Banks, Fannie, Freddie, HUD, CMBS, Life Companies, Credit Unions, Dept Funds
Location: We help provide commercial real estate debt in Oregon and Washington.
I would love to speak with you in more detail if you want more proceeds, a lower rate, and the best terms available.
Gary Winkler, CEO
ABR Commercial Mortgage
Lake Oswego Oregon
503-880-8779
www.abrcm.com
March 2023 Commercial Real Estate Financial Market Insight
Interest rates have continuously risen since the 10-year treasury hit 3.39% on February 1. As of March 8, the interest rate was 3.98%. After the Collapse Of Silicon Valley Bank, the treasury lost 38bps in 5 days. This quick loss demonstrates that investors are feeling nervous. According to the US Department of Labor, jobless claims are close to record lows. Inflation continues to be challenging to tame, even with the federal funds rate increasing eight times over the past year. Jerome Powell has made it clear that he expects interest rates to stay high until inflation can be tamed. Washington has begun questioning the validity of this stance, with legislators concerned that the US will be dragged into a recession.
Consistently, I have borrowers requesting higher LTVs to refinance existing floating rates, interest-only debt, and to purchase properties with low down payments. When speaking about constrained LTV, typically higher interest rates are the culprit. Often ignored in the equation are higher expense loads caused by increased utilities that are not part of a triple net equation or billed back to the tenants and labor costs. Recently, I thought I had a gas leak because of the spike in my gas bill., however, the gas company Informed me that they increased their rates by 17% year over year.
There is some good news for commercial real estate investors. Most lenders are continuing to allocate funds for commercial real estate. According to the FDIC Chairman, “loan delinquency remains low” for now, and “capital and liquidity positions remain strong” for banking institutions. This may mean lenders will become more competitive, offering compressed spreads to capture a much smaller debt market.
How does this affect your clients? As interest rates push up, floating rates should be converted to longer-term fixed rates, or assets should be sold. More equity may be needed to close a loan.
We provide commercial and multifamily real estate Debt.
Loan Size: $1,500,000 to $300,000,000
Property Types: Multifamily, Office, Industrial, Retail, Flex, Mixed-Use, Senior Housing, Student Housing, Mobile Home Parks, Hospitality.
Product Types: Permanent Financing, Refinancing, Construction, Bridge Lending, Mezzanine Debt, Private Debt, Portfolio Deb
Debt Providers: National, Regional, and Local Banks, Fannie, Freddie, HUD, CMBS, Life Companies, Credit Unions, Dept Funds
Location: We help provide commercial real estate debt in Oregon and Washington.
I would love to speak with you in more detail if you want more proceeds, a lower rate, and the best terms available.
Gary Winkler, CEO
ABR Commercial Mortgage
Lake Oswego Oregon
503-880-8779
February 2023 Commercial Real Estate Financial Market Insight
At the beginning of February, The Federal Reserve increased the federal funds target rate by only 25 basis points, moving it to 4.50% – 4.75% and signaling that inflation is slowing. The Fed expects that only a “couple” more increases will be necessary to calm inflation. Over the past month, the 10-Year Treasury has moved from 3.55% on January 6th to 3.94% today.
Large national banks continue to pull back from new loans while regional banks pick up the slack. Multifamily financing has continued to slow due to the disconnect between buyers and sellers caused by the new interest rate environment. Fannie and Freddie are attempting to implement programs to attract potential opportunities primarily aimed at affordable projects- time will tell whether this is successful. Retail is attracting lender interest, especially projects anchored by big box tenants. Data centers and self-storage properties have also seen an uptick in lending activity.
According to Costar, office leasing was down last quarter by 14%. The CMBS market, a significant source of financing for office properties, is showing signs of distress. Most CMBS loans are interest only, meaning additional equity may be needed to refinance and for new purchases.
Construction financing is still available to those who are well-capitalized and have experience. Lenders will expect project underwriting to include higher exit cap rates. LTC is becoming constrained in the new rate environment, and more equity may be necessary to close transactions.
How does this affect you: going out to a large pool of lenders will be the best bet for getting the best rate. Large national banks may have limited loan opportunities with higher rates. Multifamily still has some of the most competitive rates; however, some lenders are pulling back or are choosing to work on affordable projects exclusively. Office owners who have utilized interest-only vehicles may need to bring equity to refinance existing debt. Lenders are becoming open to retail properties with solid tenants and longer leases.
We provide commercial and multifamily real estate Debt.
Loan Size: $1,500,000 to $300,000,000
Property Types: Multifamily, Office, Industrial, Retail, Flex, Mixed-Use, Senior Housing, Student Housing, Mobile Home Parks, Hospitality.
Product Types: Permanent Financing, Refinancing, Construction, Bridge Lending, Mezzanine Debt, Private Debt, Portfolio Deb
Debt Providers: National, Regional, and Local Banks, Fannie, Freddie, HUD, CMBS, Life Companies, Credit Unions, Dept Funds
Location: We help provide commercial real estate debt in Oregon and Washington.
I would love to speak with you in more detail if you want more proceeds, a lower rate, and the best terms available.
Gary Winkler, CEO
ABR Commercial Mortgage
Lake Oswego Oregon
503-880-8779
www.abrcm.com
January 2023 Commercial Real Estate Financial Market Insight
The Commercial Real Estate lending market experienced some interesting changes last year. Today, the Federal Funds Target rate is sitting between 4.25% to 4.50%. A year ago, the target rate was 0% to .25%. The good news is that CPI_U (Consumer Price Index All Urban Consumers) is down to .1% from October to November. With inflation slowing, the CRE finance market should react positively in 2023. Over the past month, the 10-Year Treasury has moved from 3.50 to 3.55.
Most debt providers are lending with some pushing spreads back down. However, national lenders are concerned about repricing and focusing on core properties and core markets. If your clients need to sell an asset in a smaller market, expect your buyer to bring more equity to the table to get a loan. Even if refinancing, there will be a much smaller pool of potential lenders to utilize.
Interest rates and continued unrealistic seller pricing expectations are slowing the for-sale market. Some lenders have no choice but to pull back because bank examiners have been watching commercial real estate loan portfolios with more scrutiny. Regulators are reviewing lenders whose deposit to loan ratios are close to being out of balance, specifically scrutinizing the loan approval processes on newly issued commercial real estate loans that may be difficult to underwrite, such as hotel, office, and mom-and-pop retail.
How could this affect your clients? Loans with a smaller relationship-based lender could require more than just an operating account for a new loan because they may be watching their deposit to loan ratio. Assets based in smaller markets will require more equity to purchase if a refinance is coming up; an old high LTV loan that has not experienced an increase in NOI may have trouble receiving adequate proceeds. The lender your clients may have been utilizing for years may not have the best pricing due to deposit concerns. Going out to many lenders will be a must, as spreads may be increasing in order to offset lender risk.
We provide commercial and multifamily real estate Debt.
Loan Size: $1,500,000 to $300,000,000
Property Types: Multifamily, Office, Industrial, Retail, Flex, Mixed-Use, Senior Housing, Student Housing, Mobile Home Parks, Hospitality.
Product Types: Permanent Financing, Refinancing, Construction, Bridge Lending, Mezzanine Debt, Private Debt, Portfolio Deb
Debt Providers: National, Regional, and Local Banks, Fannie, Freddie, HUD, CMBS, Life Companies, Credit Unions, Dept Funds
Location: We help provide commercial real estate debt in Oregon and Washington.
I would love to speak with you in more detail if you want more proceeds, a lower rate, and the best terms available.
Gary Winkler, CEO
ABR Commercial Mortgage
Lake Oswego Oregon
503-880-8779
www.abrcm.com
December 2022 Commercial Real Estate Financial Market Insight
As the year wraps up, I want to share some thoughts on the changing lending market. Below is a month-by-month look at the 10-year Treasury Rate and the Federal Funds rate increases. First, the good news! The 10-year Treasury Rate has retreated 50 basis points since the October high of 4.23%. Today, the rate is 3.66.
I continue to see more competitive rates, and lenders are happy to offer low rates as long as they can reduce exposure to potential rate increase risk. The lowest rates offered today tend to be LTV, LTC or DCR constrained because lenders providing rates in the mid to low 5's are utilizing underwriting rates as much as 250 bps above the quoted rate.
The recent string of Federal Fund Rate increases is impacting those utilizing Floating debt products, such as bridge debt and construction debt. The higher interest rates on short-term debt may constrain post-closing liquidity for new projects as more equity is required to close loans and debt payments increase.
Below are 2022 10-year historical Treasury Rates at the beginning of each month. I have also included the Federal Fund's target rate increases dates and amounts. As demonstrated below, the increases do not immediately impact the rate. Historical data show that it is not uncommon for the 10-year Treasury rate to be below the Federal Funds rate. March 16, 2022, was the first increase in the Federal Fund's target rate for the year.
2022 Monthly 10-Year Treasury Rate:
Jan 1.63%, Feb 1.8%, Mar 1.71% (March 16 - Federal Funds targeted rate increased by 25 bps), Apr 2.41%, May 2.96% (May 4 - Federal Funds targeted rate increased by 50 bps), June 2.91% (June 15 - Federal Funds targeted rate increased by 75 bps), July 2.80% (July 27 - Federal Funds targeted rate increased by 75 bps), Aug 2.74%, Sep 3.19%
(September 21 Federal Funds targeted rate increased by 75 bps), Oct 3.65%, Nov 4.06% (November 2 - Federal Funds targeted rate increased by 75 bps), Dec 3.52%
How does this affect you? If you have floating debt, increases in the interest rate will eat up your return - try refinancing or paying it off. Longer Term debt currently offers the best rate with the continued inversion of treasuries (longer-term debt being less expensive than short-term). Longer-term debt will provide a buffer, creating more stability during a potential recession.
We provide commercial and multifamily real estate Debt.
Loan Size: $1,500,000 to $300,000,000
Property Types: Multifamily, Office, Industrial, Retail, Flex, Mixed-Use, Senior Housing, Student Housing, Mobile Home Parks, Hospitality.
Product Types: Permanent Financing, Refinancing, Construction, Bridge Lending, Mezzanine Debt, Private Debt, Portfolio Deb
Debt Providers: National, Regional, and Local Banks, Fannie, Freddie, HUD, CMBS, Life Companies, Credit Unions, Dept Funds
Location: We help provide commercial real estate debt in Oregon and Washington.
I would love to speak with you in more detail if you want more proceeds, a lower rate, and the best terms available.
Gary Winkler, CEO
ABR Commercial Mortgage
Lake Oswego Oregon
503-880-8779
www.abrcm.com
November 2022 Commercial Real Estate Financial Market Insight
Even with interest rates increasing, there is still good news. Interest rates will stay far from where they were in the 1980s. In 1981, the 10-year treasury and inflation rate were above 14%, compared to today. Today's inflation rate is slightly above 8%, year over year, and continues to trend down. The 10-year treasury if half the inflation rate and does not mirror the inflation rate as was seen in the 80’s.
There are many debt providers with plenty of capital still available. Because of the higher interest rates, high LTV loans will be more difficult to achieve as they become DCR-constrained. Secondary markets have seen larger lenders pulling back from rural communities and focusing on historically stable markets.
Some lenders have stopped lending for many reasons, with federal compliance standards leading the charge. Because of the higher interest rates, retaining deposits from existing clients has become challenging. Clients are moving deposits because of incentives and savings account interest rates offered by competing banks. A bank can quickly be knocked out of compliance if they lose enough deposits.
Lenders are still interested in refinancing many product types; however, hospitality debt seems to be the most difficult to place but is still available for a strong sponsor. New construction lending is still available. With new underwriting standards, loan to cost amounts have been reduced. Gap funding is now being used more frequently within the capital stack to achieve higher LTC.
The 10-year treasury rate has continued to climb. The rate hit 3.97% on September 27 and dropped 25 bps in one day to 3.72%. On October 3, the rate was 3.6% and climb all month hitting 4.25% on October 24th; today, the rate is 3.80%.
How does this affect your clients? Debt for commercial real estate is still robust. I have multiple lenders compressing spreads and providing surprisingly competitive rates. Most asset classes can be financed, and construction financing is still available. Expect to get a lower LTV as underwriting for assets becomes DCR-constrained. If you would like to track the daily changes, please go to our website to view a ticker of the current indexes, which are updated daily.
We provide commercial and multifamily real estate Debt.
Loan Size: $1,500,000 to $300,000,000
Property Types: Multifamily, Office, Industrial, Retail, Flex, Mixed-Use, Senior Housing, Student Housing, Mobile Home Parks, Hospitality.
Product Types: Permanent Financing, Refinancing, Construction, Bridge Lending, Mezzanine Debt, Private Debt, Portfolio Deb
Debt Providers: National, Regional, and Local Banks, Fannie, Freddie, HUD, CMBS, Life Companies, Credit Unions, Dept Funds
Location: We help provide commercial real estate debt in Oregon and Washington.
I would love to speak with you in more detail if you want more proceeds, a lower rate, and the best terms available.
Gary Winkler, CEO
ABR Commercial Mortgage
Lake Oswego Oregon
503-880-8779
www.abrcm.com
October 2022 Commercial Real Estate Financial Market Insight
There has been recent news about banks pulling back from financing. No need to panic. The pullback is partially due to the consistent increase in the Federal Funds Rate and its impact on the 10 yr. Treasury. The retreat is also due to a record amount, approximately 316 billion, of new commercial real estate debt placed in the first six months of 2022. This increase of roughly 170% over the first six months of 2021 has caused many large institutions to run low on capital budgeted for deployment in 2022. Based on conversations I have had with clients, part of the large increase could be caused by investors opting to refinance, even paying significant prepayment penalties, to lock a rate and remove uncertainty.
Large financial institutions are being careful not to oversaturate their portfolios with commercial real estate, which could violate governmental regulations put in place during the last downturn. Currently, the government is analyzing the potential for losses. Financial institutions are stepping back as debt placement practices are scrutinized by the federal government.
The 10-year treasury rate continues to move up and down like a yo-yo. The rate hit 3.97% on September 27 and dropped 25bps in one day to 3.72% on September 28. As of today, the rate is 4.1%.
How does this affect your client? Debt for commercial real estate Is still available, and, in fact, many lenders are increasing the amount of capital they are deploying in order to fill the void left by the larger institutions. Assets with issues and higher vacancy rates, such as office, may be harder to refinance. If you would like to track the daily changes, go to my website to view a ticker of the current indexes.
I would love to speak with you in more detail if you or your clients want more proceeds, a lower rate, and the best terms available.
We provide commercial and multifamily real estate Debt.
Loan Size: $1,500,000 to $300,000,000
Property Types: Multifamily, Office, Industrial, Retail, Flex, Mixed-Use, Senior Housing, Student Housing, Mobile Home Parks, Hospitality.
Product Types: Permanent Financing, Refinancing, Construction, Bridge Lending, Mezzanine Debt, Private Debt, Portfolio Deb
Debt Providers: National, Regional, and Local Banks, Fannie, Freddie, HUD, CMBS, Life Companies, Credit Unions, Dept Funds
Location: We help provide commercial real estate debt in Oregon and Washington.
I would love to speak with you in more detail if you want more proceeds, a lower rate, and the best terms available.
Gary Winkler, CEO
ABR Commercial Mortgage
Lake Oswego Oregon
503-880-8779
www.abrcm.com
September 2022 Commercial Real Estate Financial Market Insight
The Federal Reserve's actions are starting to impact the economy and slow inflation. The Ten Year Treasury Rate has increased, with many lenders adjusting strategies to update pricing quickly. Daily interest rate repricing is becoming a regular occurrence due to volatile indexes. To this point, last week, a lender prepared an LOI for my client and let me know it was ready; however, It was not sent. Before sending the LOI, the 10 Year Treasury Rate was increased by 14 bps, and the lender repriced the deal.
Federal Reserve Chairman, Jerome Powell, made it quite clear at the Jackson Hole symposium on August 26th that the Federal Fund Rate will continue to climb. During his speech, he utilized words like "forcefully" and "pain" to describe the Fed's resolve to slow inflation to 2%. The inflation rate is beginning to trend in the right direction. The CPI decreased to 8.5% for the 12 months ending in July, down from 9.1% for the 12 months ending in June, indicating we have a long way to go.
With borrowers' sensitivity to interest rates, I thought it would be helpful to describe the last 8 months of volatility in the 10 Year Treasury. On January 3rd, The rate was at 1.63%, and I was still closing loans between 3.25% – 3.9%. By April 4th, the 10-year Treasury rate had increased to 2.42%. By May 6th, the rate was up to 3.12%, and the expectation was that historically low rates were in the past. This opinion seemed solid when, on June 14th, we hit a high of 3.49%. Unexpectedly, the 10 Year trended down, and by July 1st, the rate was down to 2.82%, a 67 basis point reduction from June 14th. This downward trend continued on August 1st when the 10-year hit 2.6%. Unfortunately, the rate began to climb again and is at a decade high of 3.59% today.
How does this affect you? Your clients wishing to purchase commercial real estate and Multifamily will need more proceeds due to debt coverage constraints. The amount of proceeds may adjust until your buyer locks in their rate. Each lender has a different way of
locking the rate. Some will wait until closing; others will lock the rate for 90 days. Make sure you understand what you are signing up for.
Contact me if you are interested.
I would love to speak with you in more detail if your clients want more proceeds, a lower rate, and the best terms available. Feel free to go to our website if you would like to see a ticker of the current indexes.
We provide commercial and multifamily real estate Debt.
Loan Size: $1,500,000 to $300,000,000
Property Types: Multifamily, Office, Industrial, Retail, Flex, Mixed-Use, Senior Housing, Student Housing, Mobile Home Parks, Hospitality.
Product Types: Permanent Financing, Refinancing, Construction, Bridge Lending, Mezzanine Debt, Private Debt, Portfolio Deb
Debt Providers: National, Regional, and Local Banks, Fannie, Freddie, HUD, CMBS, Life Companies, Credit Unions, Dept Funds
Location: We help provide commercial real estate debt in Oregon and Washington.
I would love to speak with you in more detail if you want more proceeds, a lower rate, and the best terms available.
Gary Winkler, CEO
ABR Commercial Mortgage
Lake Oswego Oregon
503-880-8779
www.abrcm.com
August 2022 Commercial Real Estate Financial Market Insight
As you know, the Federal Reserve increased the Benchmark Rate by 75 basis points last month. The Central Bank will continue to raise rates; however, if there's evidence that this increase helps slow down inflation, expected future increases should be smaller. The rate increase does not directly cause long-term treasury rates to increase. The rise of 75 basis points took place during the July 27th meeting. On the 27th, the 10-year Treasury was 2.78%; on August 1st, the 10-year at 2.59%. As of today, the ten years is at 2.89%.
Even with strong commercial real estate fundamentals, many lenders expect the demand for commercial mortgages to slow and have seen their pipelines show signs of a slowdown. Some lenders have been increasing spreads or deciding not to lend on real estate assets, which tend to be struck during a recession. Office, which was already experiencing high vacancy, and Hospitality, which is seeing positive growth, are asset types that are being discussed.
The temporary slowdown in lending may be an opportunity due to lenders having capital sitting idle. According to the Mortgage Bankers Association, multifamily, the strongest asset class, is expected to have 10% lower origination than last year. This slowing trend is likely to reverse in 2023.
How does this affect you? Rates have come down depending on what lending source is utilized. Shorter-term interest rates seem to be gaining favor with banks and borrowers as both groups try to navigate the uncertain market.
I would love to speak with you in more detail if you want more proceeds, a lower rate, and the best terms available. Feel free to go to our website if you would like to see a ticker of the current indexes.
We provide commercial and multifamily real estate Debt.
Loan Size: $1,500,000 to $300,000,000
Property Types: Multifamily, Office, Industrial, Retail, Flex, Mixed-Use, Senior Housing, Student Housing, Mobile Home Parks, Hospitality.
Product Types: Permanent Financing, Refinancing, Construction, Bridge Lending, Mezzanine Debt, Private Debt, Portfolio Deb
Debt Providers: National, Regional, and Local Banks, Fannie, Freddie, HUD, CMBS, Life Companies, Credit Unions, Dept Funds
Location: We help provide commercial real estate debt in Oregon and Washington.
I would love to speak with you in more detail if you want more proceeds, a lower rate, and the best terms available.
Gary Winkler, CEO
ABR Commercial Mortgage
Lake Oswego Oregon
503-880-8779
www.abrcm.com
July 2022 Commercial Real Estate Financial Market Insight
I have been closely following the changing Commercial and Multifamily real estate markets and thought you would find the following interesting.
Due to the ever-changing interest rate landscape, property owners are trying to refinance quickly to reduce uncertainty. Because of the recent interest rate reduction, many lending sources have become overwhelmed and are increasing interest rates once their allotted capital has been used. Don't be concerned, however, as a deal can always be found with a large group of lending sources.
Fannie and Freddy continue to offer a good product. However, I am not convinced agency deals are the most competitive sources in the market currently. Property sales continue to be robust, and, with cap rates staying low, be prepared to increase down payments to offset the rate increase.
A few months ago, spreads were extremely thin. With investors rushing to avoid uncertainty, many lenders have filled their pipeline for another quarter. Once the pipeline is full, lenders tend to increase their quoted interest rate. Be aware that the index change may not have the immediate impact that many investors assume. Some lenders change pricing daily, others weekly, and still others monthly.
How is the 10-year Treasury Rate looking? The 10-year Treasury rate fell from a high of 3.48% as of June 19 to 3.02% as of July 11th. The 5 and 7-year rates are still higher than the 10-year. Lenders continue to compress spreads for short-term debt to avoid committing capital for longer periods.
How does this affect you? Great rates can still be found when you know where to look and your goals are clear. The 5 and 7-year terms may be an excellent place to go if you plan to sell or refinance in the near term. Feel free to go to our website if you would like to see a ticker of the current indexes.
We provide commercial and multifamily real estate Debt.
Loan Size: $1,500,000 to $300,000,000
Property Types: Multifamily, Office, Industrial, Retail, Flex, Mixed-Use, Senior Housing, Student Housing, Mobile Home Parks, Hospitality.
Product Types: Permanent Financing, Refinancing, Construction, Bridge Lending, Mezzanine Debt, Private Debt, Portfolio Deb
Debt Providers: National, Regional, and Local Banks, Fannie, Freddie, HUD, CMBS, Life Companies, Credit Unions, Dept Funds
Location: We help provide commercial real estate debt in Oregon and Washington.
I would love to speak with you in more detail if you want more proceeds, a lower rate, and the best terms available.
Gary Winkler, CEO
ABR Commercial Mortgage
Lake Oswego Oregon
503-880-8779
www.abrcm.com
June 2022 Commercial Real Estate Financial Market Insight
Over the past year, the news has focused on rising interest rates. The commercial real estate spaces had more issues due to the complexity of the capital markets. Stability in multifamily has been strong because of access to agency debt. There is no denying that a lot of the turmoil is based on the disconnection between Buyers’ and Sellers’ property pricing and the vanishing equity in real estate that has occurred from higher interest rates. The good news is that we're getting closer to the Fed’s target inflation rate of 2% a year. Unfortunately, I expect another quarter-point increase at the Fed’s next meeting.
Market sentiment is fluctuating, with experts’ expectations of recession ranging from extreme to slight. Once inflation is under control, I expect a decrease in the federal fund’s target rate. This decrease should take place within the next 6 to 12 months. Let me be clear, I do not believe that interest rates will plummet again to the low-interest rates between 3% and 4%.
Fixed rates range from 5% to 7.8% for stabilized assets. Lenders offering fixed rates above 7% are not truly active in the market. Some debt providers charge upwards of 350 basis points above the quoted treasury rate. In contrast, less than six months ago, the typical rate would range from 175 basis points to 250 basis points for stabilized assets. These lenders are offering less than palatable rates utilizing this conservative approach, to be perceived as an active debt provider instead of as stepping back. Many smaller lenders have more commercial real estate debt in their portfolios than larger lenders. They require a conservative posture that includes higher federal scrutiny.
I continue interacting with lenders looking to place debt and have adjusted their interest rates accordingly. The 10-year treasury, for instance, is sitting at 3.689%. In October, the rate was as high as 4.24%. Agency debt for low-leverage multifamily provides the best opportunity. The best rate offered community is 164 basis points above the 10-year treasury.
There are capital providers who see this downturn as an opportunity. Properties with high LTV, needing to refinance, are finding shortfalls caused by commercial real estate price value reduction. The primary beneficiaries are providers of equity, mezzanine financing, private lenders, and debt funds.
How does this affect you? Finding lenders needing to deploy capital, produces the best terms and interest rates. The best rates continue for multifamily, industrial, and some retail. Expect that proceeds will be lower based on the change to quoted interest rates. The best rates for non-residential properties will be given to owners with well-qualified commercial tenants with longer lease terms. If you have a floating interest rate, refinancing should save you money. The treasury yield curve continues to be inverted, which may make longer-term rates more attractive.
Call me for more proceeds, a lower rate, and the best commercial and multifamily real estate debt available.
We provide commercial and multifamily real estate Debt.
Loan Size: $1,500,000 to $300,000,000
Property Types: Multifamily, Office, Industrial, Retail, Flex, Mixed-Use, Senior Housing, Student Housing, Mobile Home Parks, Hospitality.
Product Types: Permanent Financing, Refinancing, Construction, Bridge Lending, Mezzanine Debt, Private Debt, Portfolio Deb
Debt Providers: National, Regional, and Local Banks, Fannie, Freddie, HUD, CMBS, Life Companies, Credit Unions, Dept Funds
Location: We help provide commercial real estate debt in Oregon and Washington.
I would love to speak with you in more detail if you want more proceeds, a lower rate, and the best terms available.
Gary Winkler, CEO
ABR Commercial Mortgage
Lake Oswego Oregon
503-880-8779
www.abrcm.com
May 2022 Commercial Real Estate Financial Market Insight
I have been closely following the changing Commercial and Multifamily real estate markets. I thought you and your clients would find the following interesting.
Due to the large scale of capital trying to find a place, the increase in lending competition will continue for the foreseeable future. Property sales will help with the placement of some of this capital support as large investment firms try to hedge against inflation by increasing their portfolios.
Historically, loan spreads have been as high as 400 basis points above the quoted index. Today, the spread compression has pushed lenders to quote interest rates between 150 basis points and 200 basis points above the quoted index.
In the recent past, many lenders offered quotes utilizing swap rates with the hope they could offer more competitive rates against banks deploying large amounts of capital and using treasury rates as their quoting index. The swap rates now are closely mirroring the treasury rates making them less competitive. The last time I quoted a swap rate, the rate was higher than the Treasury rate equivalent. Below you can see the comparison between the Treasury and Swap rate indexes as of the 2nd of May.
The Treasury rates are as follows: five-year 2.914%, seven-year 2.974%, 10-year 2.959%.
The Swap rates are as follows: 5-year 2.95%, 7-year 2.97%, 10-year 3.01%. As you can see, the seven-year and 10-year Treasury are still inverted.
On a side note: Fannie and Freddie, the go-to lending sources for multifamily, is no longer offering the most competitive rates, even with the 2022 mandate to deploy more capital.
How does this affect you? The competitiveness in the market is good for those wishing to purchase or refinance commercial and multifamily real estate properties. The 7-year and 10-year rates will offer the best bang for the buck.
I would love to speak with you in more detail if you would like to get your more proceeds, a lower rate, and the best terms available.
We provide commercial and multifamily real estate Debt.
Loan Size: $1,500,000 to $300,000,000
Property Types: Multifamily, Office, Industrial, Retail, Flex, Mixed-Use, Senior Housing, Student Housing, Mobile Home Parks, Hospitality.
Product Types: Permanent Financing, Refinancing, Construction, Bridge Lending, Mezzanine Debt, Private Debt, Portfolio Deb
Debt Providers: National, Regional, and Local Banks, Fannie, Freddie, HUD, CMBS, Life Companies, Credit Unions, Dept Funds
Location: We help provide commercial real estate debt in Oregon and Washington.
I would love to speak with you in more detail if you want more proceeds, a lower rate, and the best terms available.
Gary Winkler, CEO
ABR Commercial Mortgage
Lake Oswego Oregon
503-880-8779
www.abrcm.com
