November Financing Market & Trading Desk Commentary

By Scott Taccati

Continued improvement has occurred with overall yields in October, and FINALLY spreads for HUD multifamily product has finally begun to tighten after 4 + months of widening. As of this writing spreads have tightened up almost 30 basis points over the last two weeks of October! We are presently at rate levels experienced in mid-August for HUD deals, being priced in the 4.25% to 4.375% range. A nice improvement from the 4.50% to 4.65% range experience last month. The spreads are still much higher than they were just a few months ago, however who knows if they will ever reach those levels again when rate expectations are nothing but up.

As for the general level of interest rates, the FED has continued to express its intention to purchase single family MBS securities and Treasuries into next year at $85 billion per month. The continued need for easy monetary policy is still on the horizon for some time to come until consistent data points to economic growth and acceptable employment levels. Tapering will in fact occur, but not this year! The GNMA trading desk has seen very anemic activity with fewer deals coming to the market for investors to bid on. For instance, in October of last year through October 30th, 2012, there were 213 loans priced at an average interest rate in the mid to upper 2% range. This October is just over 12.5% of that total with only 29 loans delivered to the market at rates approximately 175 to 200 basis points higher than one year ago. Of course, this anemic activity is due to HUD commitment authority running out in August, the government shutdown, and the overall rise in interest rates. GNMA bids have been inconsistent, but the overall near-term direction appears to be flat or lower.

Agency financing for 10-year money is in the upper 4% range for maximum leverage of 80%. Life company financing is in the 4.5% range for 10 years, however leverage ranges from 65% to 75%. HUD financing fixed for 35 years with MIP will be in the upper 4% range priced today. Life company financing has generated significant market share over the last two quarters due to comparison rate levels for alternative financing. Please note that the life company box is generally very specific as it relates to market, class of property, location and lower LTV ratios.

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

10 Year Treasury:
Low 2.48 High 2.76
Close 2.55

30 Year Treasury:
Low 3.57 High 3.79
Close 3.65

HUD Multifamily Est:
Low 4.25 High 4.50
Close 4.25

Monthly Highlight

TCR is pleased to announce the successful commitment obtained from HUD for $5.5 million on a Class B grade apartment project located in Macon, Georgia. It is expected to close by year end and will be rate locked in the lower 4% range.