Capital Markets Update
All-Time Low Rates Fuel Activity
Lenders continue their cautious trajectory towards a pre-Covid environment as promising vaccine news surfaces. Sales activity picks up and the refinancing pace continues. The yield curve is essentially flat by historic standards with the 10-year Treasury Rate still below 1.0%, making longer-term positive leverage debt attractive for cash-on-cash return strategies. Bloomberg estimates the 10-year will rise to 1.50% in one year. On the other hand, Fed Chairman Jerome Powell has indicated the Fed "is not even considering raising rates in the near future," giving floating rate debt an appeal for Borrowers looking for prepayment flexibility, upsizing, among other advantages. Recent successful securitizations of newly issued CMBS and CLO bonds have given promise that lenders will be more competitive in this space across a wider array of asset classes in Q4.
Most life insurance companies are back competing with Fannie and Freddie. Banks and Credit Unions have remained selective on asset class and leverage, with some outliers lending up to 75% LTV with no "Covid" holdbacks. Construction lenders will keep their focus on Sponsorship experience, location, and asset class. With their general pullback on leverage, max leverage construction loans via the HUD 221d4 program (40 year fixed, 40 year AM) will continue to be the best alternative for long-hold business plans.
Fannie Mae & Freddie Mac - Both agencies are behind their annual origination goals and will continue to push their Green Programs into Q4 with interest rate savings up to 30 basis points. Rates have dropped and are ranging from the low-2%'s to low-3%'s. Both agencies are not shying away from cash-out refinances, although still require "Covid" holdbacks on Tier 2 and 3 transactions. Telling the rent collection story is remains extremely important in negotiating proceeds and terms.
121-Unit, 4-Property Apartment Portfolio - Portland, OR
Negotiated bulk pricing discounts and leveraged Fannie Mae's Green Rewards Program to achieve mid-2% rates, including for the smaller $1-2 million portions of the total $17 million secured.
Lender Program Highlight
Asset Classes: Multifamily, Mixed-Use
Loan Size: $5-30 million
Leverage: 75%-80% LTC
Rate: Prime + 0.50% (3.75% today) with a 5.0% floor rate
Other: Full-Recourse. Core Western US markets.
Tim Gerlach, CPA | Principal
CPA Lic. 130463 | Broker Lic. 02038912