August Financing Market Commentary

By Scott Taccati

The Federal Reserve’s words and continued actions do not seem to calm the markets since the infamous spike in rates that went up on the long side of borrowing rates a couple of months ago. Interest rates are persistently staying in the upper range for long term money. For HUD borrowers, spreads have not subsided much since the spike last month. Recently quoted HUD deals offered mortgage pricing prior to MIP of approximately 4% to 4.25%. Recall just 60 days ago spreads were about 110 basis points over the 10 Year Treasury and 15 basis points under the 30 Year Treasury. As of today, spreads are approximately 150 basis points over the 10 Year Treasury and 45 basis points over the 30 Year Treasury. Spread ARE WIDE!!! WHY? Because these loans are sold in the mortgage-backed securities market. As long as there is anticipated rate increases in the marketplace, spreads will remain on the high side. Once the underlying Treasuries increase to anticipated levels, spreads may narrow and come back down. Uncertainty breeds rate premium in investor purchases…thus spreads. Note however, the HUD financing spreads remain more attractive than ANY OTHER form of borrowing for the length of time.

CMBS spreads have also increased by 20%, which again is attributable to the investor demand for the underlying mortgage-backed securities. Life company spreads have maintained a fairly stable level because those loans are for their own portfolios and not resold in the secondary mortgage market (no fear of losing money on the resale of a loan like lenders who sell loans).

With spreads increasing on several fronts, look for BANKS to get back in the game and possible offer some seriously attractive financing for up to 10 years, competing even with life companies and conduits for 10-year money. This is made possible now because the banking crisis is now over and many banks all of a sudden are ready to get back in the game that they loathed over the last couple of years. The old pendulum is swinging back.

Look for overall borrowing rates at maximum leverage to now be approaching 5% for 10-year money. Lower leverage deals will be in the mid 4% range. Multifamily borrowing continues to be the sector that enjoys the overall lowest spreads.

10 Year Treasury:
Low 2.44 High 2.73
Close 2.72

30 Year Treasury:
Low 3.61 High 3.75
Close 3.75

HUD Multifamily Est:
Low 4.00 High 4.25
Close 4.10

Trillium Capital Resources is pleased to announce the addition of Michael Blevins as

Senior Vice President.

Mike is a Commercial Real Estate Lending professional with over 25 years of experience in the banking industry with a proven track record in delivering superior real estate lending results for both commercial and residential properties.