February Financing Market & Trading Desk Commentary

By Scott Taccati

We began the year basically at the peak levels of interest rates for all of 2013. The month of January resulted in a dramatic decrease in Treasury yields and a further decrease in GNMA spreads. The spread decrease was somewhat anticipated, but not the Treasury rate decrease. The overall decrease in Treasury rates is a surprise to everyone, but an unexpected weak job report, weaker than expected housing construction activity and a sell-off in emerging market equities resulted in a 35-basis point decline in the 10-year Treasury. Spreads for GNMA securities for multifamily product (HUD permanent loan rates) ended the month approximately 15 to 20 basis points lower at approximately 130 basis points over the 10 Year Treasury. This combination of lower Treasuries and tighter spreads resulted in a rate decrease of approximately 50 to 55 basis points in one month!

The tremendous improvement in rates and spreads have brought the HUD rate hovering just below 4%. Spreads are still much higher than they were in the first half of 2013.

For apartment deals, HUD deals are being priced around 4.00%, bringing the all-in rate inclusive of MIP to approximately 4.60%, fixed for 35 years. We are back at attractive levels for any borrower who wants long term fixed rate non-recourse money. Agency financing for 10-year money is in the 4.5% range as well for maximum leverage of 80%. Five- and seven-year money is priced around 3.55% and 4.10% respectively. Floaters are attractive with caps built in as well, generally priced at LIBOR plus 300 basis points with various costs for caps.

Lastly, CMBS activity is strong with attractive terms. Debt yield ratios are as low as 8% but constrained by 75% to 80% LTV ratio and 1.25 DSC ratio. Pricing over 5-, 7- and 10-year swap rates range from 180 to 220. All in loan rate for most product types is in the 4.625% range fixed for 10 years, depending on leverage. Hotels are limited to 70% LTV ratio. Interest only periods can be as long as 5 years for lower LTV ratios.

Trillium facilitates financing for all property types, with loan execution from our correspondent lenders. We will not be OUTBID or OUT SERVICED on any financing deal!