January Financing Market & Trading Desk Commentary

By Scott Taccati

Happy New Year from Trillium Capital Resources!  2013 was an exciting year and we are definitely looking forward to another successful year in 2014.

Overall 2013 will be remembered as essentially the temporary end to abnormally low interest rates.  HUD multifamily pricing began the year slightly above the mid 2% range.  As rates began to steadily climb in early 2013, a reprieve came in early May when notably the final ascent began in mid-May. The ascent reached an all year high in mid-October at 4.65%. The all-time low in spreads was essentially enjoyed during the first half of the year at approximately 110 basis points over the 10-year Treasury.  The peak in spreads was reached in mid-October at approximately 165 basis points over the 10 Year Treasury.  The combination of higher Treasuries and spreads resulted in a rate move upward of approximately 200 basis points (140 basis points in Treasury increase and approximately 50 basis points in spread widening).  The month of December actually resulted in a 10-basis point contraction in spreads while Treasuries began another ascent to the 3% range on the 10 Year Treasury.
For apartment deals, HUD deals are being priced around 4.45% to 4.50%, bringing the all-in rate inclusive of MIP to approximately 5%, fixed for 35 years. Agency financing for 10-year money is still in the 5% range for maximum leverage of 80%. Also note underwriting on ANY DEAL for maximum leverage is now being restricted by DSC ratio requirements and NOT LTV ratios anymore, which is the result of the increase in interest rates. The anticipation for borrowing rates in 2014 is upward, but not likely at the upward move experienced in 2013. Also spread movement is anticipated to either be flat or slightly downward. 
Trillium facilitates financing for all property types, representing a number of lenders. We will not be outbid on any financing deal and will provide exceptional customer service to all clients!