We will be attending a CRE lenders conference arranged by Crittenden Research next week, which will provide much insight on activity and trends in the CRE financing arena. If you have a deal for immediate consideration, please contact us as these conferences are deal making sessions. As of this writing we are presenting over $60 million in deals that will be placed either in the CMBS market, insurance market or agencies.
Overall rates are holding steady with spreads hanging in there!!!!!!!
The CMBS market is definitely heating up. Spreads in this area are quoted now approximately 175+ basis points over the 10-year swap rate, resulting in the class A deals beginning to approach the 4.25% threshold for 10-year money. 7-year money is being now priced around 4%, with 5-year money falling to in the 3.50% on life quotes and agency quotes for lower leveraged deals. The 10-year swap rate is 2.57% as of this writing with the 10-year Treasury at 2.46%, resulting in a swap stack of 11 basis.
HUD rates are exhibiting spreads of approximately 115 basis point to 120 basis points over the 10 Year Treasury. Most recent quotes are in the 3.60% range.
Also note forward rate locks are available with most life insurance company lenders up to 9 months, possibly 12 depending on the deal. The rate premium beyond 60 days is approximately 5 basis points per month.
Let’s take a look at the best rates and terms we are seeing in the marketplace:
Banks that offer fixed rates utilizing interest rate swaps require spreads of 200 or less over the 90 Day Libor Rate or 210 basis points over the 30-day Libor rate in order to compete with our non-recourse lenders. This can probably only be accomplished with corresponding balances. Long term fixed rate, non-recourse funds is more abundant with our lenders.
Here are the best terms in the commercial real estate financing market today.
* 3.50 % fixed for 5 Years. Low leverage (Source is Life Company, Fannie Mae and Freddie Mac with LTV ratio at 65%)
* 3.60% fixed rate loan for 35 Years prior to .60% MIP (Source is Red Mortgage Capital, GNMA/HUD)
* 4.25 to 4.50% fixed rate loan for 10 Years (Source is life insurance company and agency with LTV up to 75% to 80%)
* Derivative pricing enables a 1% LIBOR cap of 1% for 3 years at a cost of approximately 1.50% of the loan amount, or approximately 50 basis points per year.
As it relates to the cost of equity, according to Crittenden Research, capital providers provide $5M to $10M JV equity investments for multifamily, typically Class B infill assets in second tier or better submarkets. The investor typically provides 75% to 85% of the total equity. Look for 10% to 12% preferred returns and overall leveraged returns in the high teens assuming a five-year hold period.