Financing Market Commentary

By Scott Taccati

Current pricing for multifamily mortgage-backed securities indicates demand has fallen off significantly this year when compared to the exuberance that was prevalent in last year’s market for these securities. Spreads have widened significantly when compared to last year. Though rates are still very attractive for multifamily GNMA securities, single family securities demand has resulted in securities pricing that is actually higher than multifamily securities, which is a complete reversal of last year performance when pricing dynamics for multifamily product easily outperformed the single-family product. Recent pricing activity for a HUD multifamily product indicates prevalent market rates in the low 3% range prior to MIP.

Conduit deals are being priced over comparable Treasuries at approximately 165 to 250 basis points, depending on product type and LTV ratios. Insurance funding is being priced at approximately 160 basis points to 200 basis points, but LTV ratios for this funding will be less when compared to conduit deals. With the 10 Year Treasury below 2%, deals are priced generally around the 4% range fixed for 10 years, on average. Single credit tenant deals are priced as low as 3.25% fixed for 25 years (co-terminus leases are required), with LTV ratios up to 95% for AAA rated credit tenants.

Overall, the financing markets for commercial real estate are healthy. Delinquencies are at their lowest levels in years, with overall interest rates at near all-time lows as well. Debt service coverage ratios are certainly easily obtainable to achieve at 1.50X at better, even with leverage at 80% LTV. Debt yields for hotels are at a very reasonable 11.50%, which mathematically reflects a capitalization rate of 8% or less with a loan to value ratio up to 65%. Cap rates are ranging from 6% to 8% on most property types. Combined with the low cost of money, resulting in serious return on invested equity exceeding 12%, without consideration of rent growth or property appreciation….AFTER TAX!

Overall Treasuries have declined since last month by approximately 25 basis points for the 10 Year and 30 Year Treasury rates. 10 Year rates ranged from a low of 1.68 to 1.97, with the 30-year ranging from 2.84 to 3.14. The overall securities market for HUD (GNMA securities) have seen spreads widen over the Treasuries, with HUD coupon rates generally above the effective 30 Year Treasury rate.

Our Network of Funding Sources Specializing in the following Product Types:

  • Apartments – HUD, FNMA, Freddie Mac, Life Companies & Conduit Market. LTV ratio up to 80% except for Life Companies, which is up to 75%.
  • Retail – Life Companies, Conduit & Private Placement Capital. Up to 95% LTV for single credit tenant and up to 75% LTV for all other lenders.
  • Hospitality – Life Companies & Conduit up to 65% LTV
  • Self-Storage – Life Companies & Conduit up to 75% LTV
  • Office – Life Companies & Conduit up to 75% LTV

Deal sizes range from $1 million and up for most product types.