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Q2 Capital Markets Update

published April 4, 2023

Waiting for Market Certainty

All eyes are still on the Fed as to the direction of rates in the coming months, and if they may even start cutting rates later this year.  In light of the recent banking issues, it seems they may have just one more 0.25% hike coming at their May 3rd meeting.  Much of this will depend on any further signs of cracks in the economy.  If any indications show, they may not hike at all, but if things feel "Ok" they will hike.  

Also having major implications is the jobs market.  It may not be as "resilient" as the Fed has been making it out to be.  The next jobs report is out this Friday with a forecast of 223k added jobs.  Keeping pace with population growth is 150k jobs, so we aren't too far off from contraction, keeping in mind that historically the majority of job losses have come after rate cuts start.  While Tech has been in the headlines, other sectors are not too far behind:

Job Cuts - Oct. 2022 - March 2023.png

What does this mean as it relates to loan terms and future rates?  As we've seen it play out with the Fed before, good economic news is bad news for rates, and visa versa.  I suspect we'll see stability in long-term fixed rates in the second half of this year, with lenders likely competing in the 5.0%-6.50% range.  With the recent banking issues, it is safe to expect less lending options as many groups will continue to sit on the sidelines.  This will mean more challenges to secure interest-only, non-recourse, max leverage, and flexible prepay through traditional avenues.


If economic conditions show weakness, I expect rates will be in the lower end of this range as the market adjusts to the Feds likely next move to begin accommodating sooner than later.  With all this in mind, 3-5 year fixed options with longer terms subject to rate re-sets allows for flexible short prepayment terms to keep the refinance door open if rates fall in 12-24 months, while giving term certainty, especially for properties that may have rollover risk.  


As for floating rates, the forward curve is predicting Term SOFR to peak near 5% this June and then start dropping to reach 3.0% by the end of 2024.  SOFR Cap costs are already coming down to reflect this expectation and lower volatility.  The infamous "hairy" chart below shows what floating rates have actually done relative to the forward curve expectations.  Historically, when rates drop, particularly driven by Fed intervention, it happens quicker than forecast.

Forward Curve - Hairy Chart.png

Hot Money

Fixed-Rate Bridge to Perm Loan Program

Geography: California, Illinois, and other Western US states

Loan Size: $2 million - $15 million

LTC: Up to 70%.  If owned for at least 12-months, will give credit for "as-is" value.

Term: 5 Years

Stabilized Debt Yield: Underwritten to 9.0%

Rate: "A" piece (initial funding) fixed at T+2.75% (6.15% today), and "B" piece (future funding) floats

Perm portion: Structured as an extension option giving the Borrower flexibility to sell or refinance elsewhere. 

Perm sizing: 1.25x DSCR

Perm rate: T + 2.25%

Recourse: Full-recourse

Rate and Economic Indicators

  • 10 Year Treasury down to 3.34% from 4.08% at the start of March:  The forward curve is pinning the 10-year around 3.20%-3.50% for the next couple of years.

  • Term SOFR up to 4.83% and expected to peak around 5.0% in June:  SOFR forward curve predicts it will be at 3.50% by April 2024 and falling further. 

  • Core PCE

    • 4.6%, an improved 0.3% monthly increase from prior month's 0.5% increase.​

    • It peaked at 5.4% in March of last year.  

Recent Financings

Chico-CA Flex Office Industrial photo.jpg

Industrial/Flex Refinance
Northern California

$4.30 Million Cash-Out Refinance

5.75% rate locked at signed App 

5-Year Fixed, 10-Year Term

2-year stepdown prepay then fully open

Sherman Oaks Multifamily - photo.png

Multifamily Purchase Loan
Los Angeles, CA

$3.0 Million Acquisition Loan

5.75% rate locked at signed App 

10-Year Fixed, 15-Year Term

5-year stepdown prepay then fully open

No Lender Fee

Rates Today

Fannie Mae & Freddie Mac have widened spreads with the recent drop in treasuries.  Big focus still on affordability. Fannie is beating Freddie with rates as low as 4.85%-5.10% for lower leverage and 5.25%-5.75% for max leverage. 

Life Companies have become selective for the right deal metrics.  Many are not quoting.  Others remain great options for well located real estate, early rate locks, and interest-only with rates generally in the low-5%'s.

Banks and Credit Unions are selectively quoting with outliers in the mid to high 5%'s.  A handful are sitting on the sidelines.  Each week it seems like we lose another to internal issues, or a lack of confidence in the overall market.

CMBS has truly become the "lender of last resort" with so much secondary market volatility in investor spreads. 

Bridge Lenders are becoming harder to competitively source.  There are still groups hungry to place dry powder, some offering fixed-rates in the 7.50%+ range to help Borrowers avoid purchasing SOFR caps.  Cap costs are down ~20% from a peak in volatility two weeks ago.  







10-Year Fixed


5.25% - 5.75%

45-60 days

LTV & DSCR dependent


10-Year Floating


6.75% - 7.35%

45-60 days

LTV & DSCR dependent

FHA Refinance

35-Year Fixed


5.05% - 5.20%

120-150 days

not including MIP

Life Insurance



5.0% - 5.75%

40-50 days

DY dependent

Bank, CMBS, &
Credit Union


5.50% - 6.25%

45-60 days

DY & term

Debt Funds 


8.0% - 9.0% +
Spreads of 3.50%+

14-45 days

LTC & stabilized DY dependent



5.75% - 6.25% +

45-60 days

LTC & size

Tim Gerlach Headshot - smile.jpg

Tim Gerlach, CPA  |  Principal

CPA Lic. 130463  |  Broker Lic. 02038912

"Nothing in the world can take the place of persistence.  Talent will not; nothing is more common than unsuccessful men with talent.  Genius will not; unrewarded genius is almost a proverb.  Education alone will not; the world is full of educated derelicts.  Persistence and determination alone are omnipotent."  - U.S. President, Calvin Coolidge

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