Chicago, IL -- (ReleaseWire) -- 10/16/2008 -- The commercial real estate capital markets are tightly strapped into the Wall Street roller coaster with rates jumping up and available funds tumbling down. During the past week mortgage pricing has been rapidly climbing based on spreads over comparable-term treasuries. Key market highlights are as follows:
• About 80% +/- of the traditional funding sources (life insurance companies, pension funds and banks) remain sidelined, waiting for more capital market stability.
• Five-year permanent loans are frequently breaking the 7%-mortgage-rate barrier, translating to spreads of about 400 basis points
• 10-year loans, the most common term, are priced 7.5% or more.
• Exceptions apply: Prime multifamily and commercial properties with limited leverage of 50% or less, pricing occasionally reduced by as much as one half of a percent.
• Lenders will only seek conventional property types (apartment, industrial, office and retail); projects with "stories" shunned.
• Funds are still selectively available for refinancing, with a loan restriction of 65% +/- LTV.
As a comparison, today's commercial mortgage terms and conditions reflect pricing not seen since the beginning of the decade (See Historical Mortgage Rates posted since 1983: http://www.ratesdata.com). However, leverage levels and funding availability are substantially less favorable than that time as owners must post at least 10 to 15% more equity.
The Real Estate Capital Scoreboard - Seven Percent - The New Mortgage Rate Benchmark for Income Properties