December Financing Market & Trading Desk Commentary

By Scott Taccati

The continued improvement in overall yields late last month has essentially reversed itself due to the continued TAPER TALK likelihood (as released in the FOMC minutes) and improving economic employment data that is interpreted as bullish for the economy.

Last month we also saw an improvement in spreads for GNMA multifamily securities. That has leveled off as we are trading around 150 to 160 basis points over the 10 Year Treasury. As long as interest rates are anticipated to potentially increase, spreads will likely not reduce as a rising rate environment produces spread widening. We expect GNMA spreads to remain relatively flat in this current rate environment.

For apartment deals, HUD deals are being priced around 4.35% to 4.40%, bringing the all-in rate inclusive of MIP to approximately 5%, fixed for 35 years. Agency financing for 10-year money is in the 5% range for maximum leverage of 80%. Five- and seven-year money is priced around 3.55% and 4.10% respectively. FNMA’s floating rate program is priced at 339 basis points over LIBOR and is at 3.55%. This program enables borrowers to convert to fixed rate between years two and seven.

For all property types, Life Company financing has been recently quoted at 3% for 3 years, 3.36% for 5 years and 4.03% for 7 years, with spreads ranging from 170 basis points to 200 over corresponding Treasuries. Credit Unions are offering both long term and intermediate term money with rates in the 3.95% range fixed for 5 years. Minimum loan amount is $500,000. These terms are certainly attractive to hotel borrowers for sure.

Trillium facilitates financing for all property types, representing a number of lenders. We will not be outbid on any financing deal!