Market Update – March 2017
As we are moving
into the end of the 1st quarter of 2017, it is important to keep
updated on what is happening in the ever-changing CREF (Commercial Real Estate
Finance) market. The following is an update summarizing the four major lending categories:
Life insurance companies are typically “asset
allocation” lenders. In other words, life companies invest a percentage of
their overall investment portfolio into commercial real estate loans. Commercial
real estate loans are held as long-term investments in addition to other
investments such as investment grade bonds. Life Companies can offer fixed-rate
loans from 3-30 years in duration. Benchmark 10 year fixed rate loans are
currently being placed in the 3.90%-5.00% range.
2016 was slow for CMBS due to market
volatility early in the year and concerns over the Dodd-Frank risk retention
rules late in the year. Now, in 2017, there have been multiple successful
securitizations under the new risk retention rules. Additionally, the market appetite
appears to be quite strong for this product. Ten year fixed rates range from
4.50%-5.50%. High leverage and interest only loans are generally available in
this section. CMBS has also emerged as an alternate resource for lower leverage
space with spreads dipping into the 185-200 range for select transactions that
meet certain LTV and DSCR metrics.
Banks are continuing to be more conservative
in their compliance departments and consequently in their underwriting. Banks
typically offer short-term fixed rate loans (0-5 years) and transitional loans
(bridge and construction). The market for these loans is still liquid, but has
become more conservative. Banks will continue to pump the breaks by increasing
or decreasing interest rate spreads based on their risk appetite and ability to
implement regulatory compliance.
We are seeing the agency lenders continue to
be aggressive with their production. In particular there is a push for
transactions in the affordable housing space where pricing waivers and full
term interest only is readily available.
Fannie’s long term 12 and 15 year fixed rate options at only slightly
wider rates than their 10-year term appear to be attracting more borrowers. Fixed
interest rates range from low 4% to 5% depending on length of term and
leverage, while we still are seeing high 2% to high 3% money for floating rate
options.
Bridge loans are another area of emphasis for
the agency lenders and we expect that to continue through the balance of the
year as Fannie continues to roll out their Fixed Rate Rehab program.
Last, there is additional focus on “going
green”. The agencies, specifically
Fannie, are aggressively pushing their green incentive program for all property
ages as long as you can demonstrate that the additional savings in energy or
water can be realized. Freddie is also focused
on pushing similar “green” products for properties constructed 2002 and after.
by:
Daniel Friedeberg
President
danf@slatt.com