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Q2 Capital Markets Update

Market Uncertainty Persists

While the yield curve "un-inverted" a couple weeks ago, market odds of a recession in the next year are up to 30%.  Fed minutes from last meeting are signaling aggressive balance sheet reductions starting as early as next month.  With the treasury rate having climbed over 1.0% since the start of this year, loan proceeds are harder to come by with lenders underwriting off of actual coupon rates - now in the high-3%'s to 4%'s.  Finding creative ways to push their underwriting to maximize proceeds has become important. 

 

Banks, Credit Unions, and alternative lenders are winning deals today as their rate increases have lagged behind Life Companies, CMBS, and the Agencies.  Interest-only periods have become a way some lenders are still differentiating, offering up to 5-years for 5-10 year fixed terms.  For bridge loans, SOFR Cap costs have continued to soar. Negotiating creative cap structures with preferential term and laddered strike rates can help keep this cost down substantially.  While a start rate on floating bridge loans today may be below 4%, the SOFR forward curve implies this same rate could be floating in the 5%'s within the next 6 months. 

Rate and Economic Indicators

  • 10 Year Treasury up to 3.05% from 1.84% at the start of 2022:  The forward curve is pinning the 10-year around 3.0% for the next couple of years.

  • LIBOR and SOFR up to 0.84% & 0.79% from 0.10% & 0.05% at the start of 2022:  SOFR forward curve predicts a peak of 3.25% by mid-summer. 

  • NY Fed Inflation Expectations

    • 1 Year Forward:  6.6%​

    • 3 Year Forward:  3.7%

Recent Financings

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72,000 SF Retail - Texas Ross, TJ Maxx, Chick-Fil-A, Shoe Carnival

$7.1 Million Loan

70% LTV

3.63% rate locked at signed App 

Fixed for 5-Years with 5-year fixed re-set

Flexible step-down prepay

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Multifamily Acquisition
Portland, OR

65% LTV, 3-Years Interest-Only

3.36% rate locked at signed App 

5-Year Fixed with prepay open after yr. 3

Non-recourse

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Multifamily Refinance
Portland, OR

65% LTV Cash-Out Refinance

3.25% rate locked at signed App 

5-Year Fixed, with 5-year fixed re-set

Rates Today

Fannie Mae & Freddie Mac have widened spreads and are now quoting deals in the low to high 4%'s.  

Life Companies have allocated away from real estate into corporate bonds; their rates relatively less competitive.

Banks and Credit Unions are lagging the market and generally the most competitive with early rate locks.  

Construction Lenders are focused on Sponsorship experience and a strong guarantee and GC track-record.

Lender

Max LTV

Rates

Closing

Notes

Fannie/Freddie

10-Year Fixed

80%

4.15% - 4.75%
 

45-60 days
 

LTV & DSCR dependent

Fannie/Freddie

10-Year Floating

75%

3.25% - 3.60%
 

45-60 days
 

LTV & DSCR dependent

FHA Refinance

35-Year Fixed

85%

4.0% - 4.50%
 

120-150 days

includes MIP

Life Insurance

Companies

75%

3.85% - 4.30%
 

40-50 days

DY dependent
 

CMBS, Bank, &
Credit Union

75%
 

3.85% - 4.60%
 

45-60 days
 

DY & term
dependent

Bridge
Debt Funds 

85%
 

3.75% - 5.25% +
 

14-45 days
 

LTC & stabilized DY dependent

Construction
Lenders

80%
 

4.00% - 4.75% +
 

45-60 days
 

LTC & size
dependent

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Tim Gerlach, CPA  |  Principal

CPA Lic. 130463  |  Broker Lic. 02038912

Reach out for a loan quote, prepay breakeven, or refinance analysis.

 

Direct: 323-505-9222

Email: Tim.Gerlach@StoneHarborCapital.com