2014 has been a great year for commercial real estate financing. We are grateful to all of our clients and future clients as well. We have seen interest rates begin the year at much higher levels, with the 10-year Treasury around 3% in January to 2.12% as of today. The primary cause of lower rate levels is pretty much the result of lower international level of borrowing rates. The solid performance of commercial real estate, particularly apartments, combined with lower rates have spawned solid commercial real estate financing activity.
Overall spreads have declined over the last couple of months as indicated in October’s newsletter, combined with lower Treasuries. Over the last couple of months, the effective interest rate on HUD financing, inclusive of MIP, has decline approximately 25 to 30 basis points. Today a 35-year fixed rate loan with MIP is now approaching 4%.
Let’s take a look at the best rates and terms we are seeing in the marketplace:
Here are the best terms in the commercial real estate financing market today.
* 3.95% fixed for 10 Years. Low leverage (Source is Life Company, Fannie Mae and Freddie Mac with LTV ratio at 65%) FNMA and Freddie Mac are in the 4% range at these LTV levels.
* 3.45% fixed rate loan for 35 Years prior to .60% MIP (Source is Red Mortgage Capital, GNMA/HUD)
* Conduit Pricing is 175 BP to 200 BP over 10 Year Treasury Swap, pricing 10-year money at 4.00 to 4.50% fixed rate loan.
THE CMBS Avalanche:
With the looming avalanche of refi’s and indications that interest rates may rise, operators may find themselves in a particularly tight spot. Our research shows about $346 billion in CMBS loans maturing between 2014 and 2017, with a peak of $113 billion maturing in 2016. The higher LTV ratios required to refinance these loans versus 2007, many operators will find themselves already with max leverage on these properties. Furthermore, operators will need to inject new equity into these deals to meet these tighter loan standards.
One option in protecting against the increased competition in refinancing and guarding against potential hike in the interest rate is Defeasance. Loan Defeasance, while usually a costly proposition, may be the best course of action during the next few years. Operators will have to make a decision to pay the piper now, with defeasance penalties, or pay the piper later, with potential higher interest rates and possible additional tightening of loan requirements. With all the deals that need to be financed, spreads will increase.
At TCR, we can run defeasance calculations for you to see if it makes sense to refi early and avoid getting swept up in the CMBS avalanche.
Trillium Capital Resources facilitates financing for all property types, with loan execution from our correspondent lenders. We are recognized as an alliance partner with Red Mortgage Capital and have successfully placed over $150 million with Red over the last few years. We will not be OUTBID or OUT SERVICED on any financing deal and will always be competitive with ANY lender!
CALL OR EMAIL US TODAY FOR A FINANCING QUOTE!