Financing Market Commentary

By Scott Taccati

Wild swings of interest rates, spreads and Multifamily Mortgage-Backed security pricing took place in May. We had seen the GNMA securities price at levels that yielded rates just below 3% in the month of May with spreads over the 10 Year Treasuries ranging from 130 basis points down to approximately 105 basis points. Final HUD rates prior to MIP ended up in the 3.25% range at month end. Overall, the net increase in the HUD multifamily rate for the month of May was approximately 25 basis points. During May, 10 Year Treasury rates took a wild ride from a low of 1.61 to a high of 2.18 ending the month at 2.13.

On a positive note, it appears the demand for the GNMA multifamily securities versus single family securities improved, hence the improvement in spreads noted earlier. Unfortunately, the 10 Year Treasury rate increase was greater than any spread tightening that was experienced during the month. The overall increase in Treasuries is directly attributable to rumblings regarding QE3 ending as well as better than expected housing data. The last major Fed purchase of single-family MBS securities occurred late last year when spreads over Treasuries were approximately 20 basis points higher.

Conduit activity is still brisk. Pricing over comparable Treasuries are now approximately 180 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 and comparable to FNMA pricing for LTV ratios at 65%. With the 10 Year Treasury now above 2%, deals are now priced above 4% fixed for 10 years, on average. Single credit tenant deals are priced as low as 3.50% fixed for 25 years (co-terminus leases are required), with LTV ratios up to 95% for AAA rated credit tenants, averaging in the 3.70% range.

Overall Treasuries increased dramatically in May by approximately 50 basis points for the 10 Year and 30 Year Treasury rates. The 30 Year rate increase is in concert with the 10-year rate increase described earlier, moving from a range of 2.81 to 3.36, closing the month at 3.28. The overall trend in rates is now definitely upward with significant movement occurring the second half of May. The rapid rise will likely taper off until further strong economic data is provided along with increased concern for the end of QE3 bond buying. Upward pressure on rates is definitely now a higher probability based on Fed actions that will likely taper off QE3 note purchases.

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  • 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.