Los Angeles – May 31, 2018 -Interest rates for commercial mortgage debt have increased over the past two years given the 1.00% rise in the 10-year treasury over that time period. But, that’s not the whole story. The spread over treasuries for new loans has compressed, the average loan constant has decreased, and the debt level per dollar of NOI has also increased (lower debt yields). Assuming a 65% LTV 10-year loan, increases in overall interest rates range from .20%-.60% depending upon the capital source. CorAmerica’s matrix spread has declined by .40% with a net increase in overall rate of .60%. Agency spreads for the same term and LTV have declined .54% with a net change in overall rate of .44%.
Los Angeles – April 30, 2018 – According to the CBRE Q1 2018 U.S. Lending Report, lending markets remain strong, despite recent market volatility. Real estate capital markets remained in good shape, with healthy loan production volumes and favorable credit spreads for borrowers. As investors anticipate additional short-term rate increases by the Federal Reserve this year, the yield curve has begun to flatten. By mid-April, the spread between ten-year and two-year Treasury bonds was at the tightest level since before the 2008 recession. Through February, combined Fannie Mae and Freddie Mac multifamily loan purchase volume of $15.6 billion was below the record-setting pace of $20.6 billion at the same time last year. For all loans tracked by CBRE the percentage of loans carrying interest-only terms remained at 66% in Q1, and there has been no substantial deterioration in underwriting measure over the past few quarters. The average LTV fell slightly in Q1 to 59.8% for commercial properties and 68.3% for multifamily. The average debt yield and constant across all property types was 9.36% and 5.89%, respectively. The full report is available upon request.
Los Angeles – March 31, 2018 – Spreads for CML transactions have experienced their own version of March Madness. A growing segment of the life company market has been chasing low to moderate leveraged transactions (60% leverage or less) and cutting their spreads in the process. Given the current treasury yield environment, spreads have dipped to the low 100’s for low leverage transactions. Even some modestly leveraged loans rated CM 2 for Risk Based Capital (RBC) are getting priced in this range by a number of life companies. A smaller segment of the life company market maintains a higher yield target and are willing to increase leverage, offer a longer amortization schedule, provide more flexible prepayment structures, and/or lend in secondary and tertiary markets. Spreads for these transactions range from the 140-190 basis points and are often CM2 rated loans. Agency spreads have widened for the second consecutive month, gapping 6-12 basis points over the past 30 days. This should provide life company lenders an opportunity to compete more effectively in the multifamily space. Most life companies have a positive outlook for the multifamily asset class and have CML portfolios that are underweighted in this product type.
Los Angeles – February 28, 2018 – In its CRE Debt Market Update for 4Q 2017, Situs RERC reports that the 4Q 2017 lending environment was healthy and paints a bright picture for lending in 2018. With respect to private debt, banks and insurers are reporting that the CRE market is becoming increasingly crowded, and also noted an evident loosening of underwriting standards. “Strong property fundamentals are leading to an increase in borrowing and lending across most property types and capital sources, despite how far along we are in the real estate cycle,” says Jennifer Rasmussen, PhD, Assistant Vice President of Situs RERC. “Investors are increasingly moving into the value-add space and branching into the secondary and tertiary markets in the quest for yield.” Based on information from Commercial Mortgage Alert (CMA) and Mortgage Bankers Association (MBA), Situs RERC provides the following summary of the debt markets:
Los Angeles – January 31, 2018 – According to CBRE Research, in Q4 2017 the lending market experienced favorable pricing as origination volume eased up slightly. Despite an increase in short-term interest rates in December, the enactment of comprehensive tax reform contributed to strong investor sentiment. This environment has been favorable to CMBS conduit and priviate commercial mortgage pricing. The CBRE lending Momentum Index fell by 1.2% in Q4 2017. As of December, the index is down 15.9% on a year-over-year basis. Loan underwriting turned slighly more aggressive in Q4 with the average commercial LTV up to 60.9% and the average multifamily LTV up to 71.7%. The average constant and debt yield was 5.72% and 9.09%, respectively. The percentage of loans carrying intrest-only terms rose to 66% in Q4 from 57.8% in Q3.