10 year treasury 6-1-09: 3.65%; 1 month ago 3.10%, 6 months ago, 2.66%; 1 year ago 4.03%
5 year treasury 6-1-09: 2.47%; 1 month ago 1.98%, 6 months ago, 1.63%; 1 year ago 3.36%
1 month LIBOR 6-1-09: 0.31%; 1 month ago 0.41%, 6 months ago, 1.90%; 1 year ago 2.46%
Wall Street: There was a recent article regarding the heralded opening of the TALF (Troubled Asset Relief Program) to CMBS. Unfortunately the returns required according to the article would place interest rates for new CMBS in the 9% range. Clearly the borrowing market is not ready for 9% interest rates. Wells Fargo parameters have not changed very much in the past 60 days. 65% loans are their max with terms from 2 to 5 years. Their interest rates remain competitive in the mid 6% range for the 2 and 3 year deals and the mid 7% range for 5 year deals. You can expect these rates to increase if the US Treasuries continue to rise as they have in the past 30 days. The other former conduit lender that is still open for business is CIBC which wants low leverage larger deals (in excess of $10MM). But their deal is 1 or 2 points up front, a 9% range interest rate and 1 or 2 points as an exit fee. Not surprisingly, CIBC has not done any deals in 2009.
Life Companies: This active market continues to include only a handful of life companies. Loan to values are in the 60% range for only the best quality deals and borrowers. Interest rates are in the mid to high 7% range for shorter term deals and approaching 8% for 10 year deals. Ironically most life company loan portfolios are still performing tremendously. I spoke to 2 major life companies in the past 2 weeks with loan portfolios in excess of $10 billion. In each case there were virtually no foreclosures and minimal 30 day plus delinquencies.
Credit Tenant Lease (CTL) Lenders: Very little has changed with CTL pricing. Rates for high level investment grade deals like Walgreens are in the high 6% range. Federal government deals are around 6.25%. Remember these loans are fully amortizing and typically need to be at least 15 year deals.
Commercial Banks: Deposits are a key for commercial banks as is the track record of the sponsorship and the financial wherewithal (think global cash flow). But deals are getting done with smaller regional players and community banks at 75% loan to value and at fixed interest rates of 5.75% to 6.5% for 5 year terms. The downside is that these deals are full personal recourse.
Fannie Mae and Freddie Mac: Multi-family financing is still widely available although interest rates have increased due to the recent spikes in the US Treasuries. 10 year deals for areas like Florida that are on the pre-review list (maximum 65% loan to value) are priced at just over 6% with a debt coverage requirement of 1.35. Both programs offer supplemental fundings which allow additional loan dollars as the cash flow increases.
Credit Unions: They are selective and location is important as the best deal is located in the CU’s market. Only smaller Florida deals are open for this lender. Interest rates in the high 6% to low 7% range for 10 year fixed rate loans. 75% loan to value is available as are construction and A&D loans. Limited recourse is a possibility. These lenders charge fees of 1 to 1.5 points.
Sunday, June 7, 2009
Market Rate Watch
Thursday, April 2, 2009
MARKET RATE WATCH
10 year treasury 3-27-09: 2.76%; 1 month ago 2.91%, 6 months ago, 3.84%; 1 year ago 3.52%
5 year treasury 3-27-09: 1.80%; 1 month ago 1.97%, 6 months ago, 3.02%; 1 year ago 2.58%
1 month LIBOR 3-27-09: 0.52%; 1 month ago 0.48%, 6 months ago, 3.71%; 1 year ago 2.65%
Wall Street: The Mortgage Bankers Association recent conference hosted a panel on the future of CMBS and they estimated its return in 2011. Given the amount of commercial real estate financing coming due in the next 2 years they may actually be right because all those loans have to be refinanced somewhere. In the meantime, Wells Fargo continues to be the only non-recourse lender left in this category. They continue to look for only the highest quality deals and are willing to go as high as 65% leverage. Their rates have recently increased to the mid 6% range for 2 and 3 year deals to the mid 7% range for a 5 year deal. This is probably more a sign of their reluctance to do business versus a change in interest rates which have only gone down in the past 60 days. Another lender, NATIXIS, closed shop earlier this month so the field continues to be whittled down. Only a few Wall Street firms are left financing real estate like CIBC but they only want very large deals where they do not have to compete with the smaller community banks and their interest rates are in the 9% plus range.
Life Companies: There are only a handful of life companies in the financing market today. Though many hope to be back lending towards the summer it is just not realistic. The loan to value for life deals will be maximum 60% (though there are a few that quote as high as 70%) and available only for the best quality real estate with the strongest sponsorship. Interest rates for 10 year deals range from 7% to 8%. Although the delinquencies for life portfolios continue to be historically low they have risen substantially on a % basis and the expectation (or fear) is that they will go much higher.
Credit Tenant Lease (CTL) Lenders: They have recovered with interest rates for high level investment grade deals back below 7% and for some credits like the Federal government closer to the lower 6% range. The lower level credits can range as high as the upper 8’s. Cap Rates have been rising for single tenant deals and the CTL deal becomes more feasible even for non-1031 buyers.
NEW LENDER…CREDIT UNIONS???
Can you believe it? Yes…Credit Unions are taking advantage of this current crisis to pick up market share and get some great commercial real estate loans at historic interest rate spreads on good quality assets with the best customers. Typical loan size in the $1MM to $15MM range. Loan and short term deals available with interest rates in the lower 6% range to mid 7% range. Recourse is negotiable but they are not par and charge up to 1.5 points.
Fannie Mae and Freddie Mac: Multi-family financing is widely available at attractive rates and terms primarily because of these agency lenders. The most recent 60 plus day delinquency data shows that while the rate has doubled in the past 3 months, it still is at historic lows. And the housing crisis has actually been beneficial in many markets for apartment occupancies. There was a recent article in the WSJ commenting about the positive occupancy news in Ft. Myers. Florida is a pre-review area so leverage is at 65% (though on a deal by deal basis you can get higher). The interest rates continue to be extremely attractive. A 10 year interest rate today will be in the higher 5% range with debt coverage of 1.35 times. I recently quoted a floating rate deal for Fannie Mae with an initial pay rate of 4.87% (though the deal must underwrite to a 6% interest rate)
Wednesday, February 4, 2009
THE LOOMING COMMERCIAL REAL ESTATE FINANCING CRISIS / STRATEGIES FOR REFINANCING
If you have a loan coming due anytime in the next 12 months NOW is the time to start considering your options and developing your strategy. BankAtlantic can help you devise a strategy which begins with a review of the loan amount that can be achieved based on current underwriting standards. One decision that will need to be made is whether you can live with personal recourse. It is very likely that the best deal in terms of loan to value and interest rates will come from commercial banks.
Your other strategy is to extend the loan with the current lender. This can be difficult for loans that have been securitized. BankAtlantic can help you on a consulting basis and work with your lender to get as much as a 2 year extension. You can contact me at nefron@bankatlantic.com or call me at 561-379-5807.
Commercial Real Estate Lending Update
10 year treasury 2-2-09: 2.82%; 1 month ago 2.18%, 6 months ago, 4.11%; 1 year ago 3.58%
5 year treasury 2-2-09: 1.83%; 1 month ago 1.50%, 6 months ago, 3.44%; 1 year ago 2.74%
Wall Street: At the recent CMSA conference in Miami Beach the securitized market players suggested internal controls when securitized lending returns (which everyone agrees is at least 2 years away). Some of the suggestions include lenders keeping the first 5% to 10% of the loss position and that rating agencies get paid over the life of the security versus up front. Wells Fargo continues to be the only non-recourse lender left in this category. Their criteria have remained conservative with a max loan to value of 65% (only for the better quality deals). Their fixed rates have remained steady with 2 year deals in the lower to mid 5% range; 3 year deals in the mid to upper 5% range; and 5 year deals in the mid to upper 6% range. The debt coverage remains at 1.30 times and 30 year amortization is relatively standard. Wells also now offers a program that will fix the interest rate at loan application with a 1% deposit with no hedge risk whatsoever. The premium on the rate is about 40 basis points though. The other Wall Street lenders like NATIXIS and CIBC are continuing to focus on larger (in excess of $15MM) short term floating transactions. For 65% loans the floating rate is in the lower 8% range (with a floor on LIBOR of around 3%). A 75% loan has decreased slightly as well and will be in the low 9% range. The lender may require some level of recourse.
Credit Tenant Lease (CTL) Transactions have started to recover as the commercial paper market has improved. Interest rates for Walgreen’s deals have fallen to 6.87% for a fully amortizing 25 year loan. Government deals can now get financed in the low 6% range. CVS deals are getting financed in the low 8% range and Walmart’s in the low 7% range. Depending on the overall credit ratings the interest rates can be as high as the mid 9% range. AutoZone and Office Depot are on the borderline right now and cannot be quoted. Remember that the longer the lease term the better for these CTL deals Underwriting remains very simple with no loan to value constraint and debt coverage as low as 1.0 times. Deal size can be as low as $1.5MM. Community and regional banks may offer the most competitive interest rates for these types of deals on a 5 year fixed rate basis in the low to mid 6% range but they will require at least some level of recourse.
Fannie Mae and Freddie Mac continue to be the best source for multi-family financing and have been very active. Some states though have been put on a pre-screen list which will mean more conservative underwriting. Loans in Florida will most likely be in the 65% to 70% loan to value range and have a debt coverage requirement of 1.35 times. Spreads have stabilized but recent bumps in the US Treasuries have bumped up the 10 year interest rate range about ¼ point to the low 6% range. Freddie Mac follows Fannie Mae’s lead but is looking for larger deals ($10MM plus). For deals outside if Florida the loan to value range can still be up to 80% and the debt coverage can be as low as 1.20 times.
Life companies will have very limited loan dollars available for commercial real estate in 2009. Most life companies have particular allocation targets for real estate investment. With stocks tumbling at the end of 2008, the allocation increased beyond those targets. One large life company who normally puts out $2.5B will have NO MONEY FOR MORTGAGE INVESTMENT in 2009. There are a few selected life insurance companies that will have money available. The maximum loan to value will be 65% with 10 year rates in the mid 7% to 8% range. These non-recourse deals will be available only for the best quality real estate with the strongest sponsorship.
Wednesday, December 17, 2008
Recent Deal Closing
$3,700,000 Apartment Complex in Daytona Beach, Florida
We recently closed on this 148 unit apartment complex with Fannie Mae as the lender. The client had a loan coming due and needed to refinance and pull some additional cash to payoff another loan. The occupancy was only 85% and during the lender’s due diligence process, Fannie Mae made Florida a pre-screen state so that the maximum loan to value was 65%. The client wanted flexibility at the loan expiration so we did a 10 year loan where the rate is fixed for 9 years and the 10 year the rate floats but it is prepayable with no penalty.
Market Rate Watch
10 year treasury 12-17-08: 2.12%; 1 month ago 3.82%, 6 months ago, 3.98%; 1 year ago 3.97%
5 year treasury 12-17-08: 1.21%; 1 month ago 2.56%, 6 months ago, 3.26%; 1 year ago 3.35%
Wall Street: At this point it is likely that the Wall Street conduits will be gone for at least the next 12 to 24 months if they ever return at all. Well Fargo continues to be the only lender still willing to do conduit oriented deals with non-recourse. The underwriting criteria have become more stringent and their upper limit of loan to value is only 65% versus 75% 2 months ago. They are still doing 2, 3 or 5 year fixed rate deals. Today the rates range from the mid 5% range for the 2 year deal, the upper 5% range for the 3 year deal and the upper 6% range for the 5 year deal. I purposely do not list the spreads. It is best to just focus on the overall interest rate. The debt coverage requirement is 1.30 times and 30 year amortization is relatively standard. Wells also now offers a program that will fix the interest rate at loan application with a 1% deposit with no hedge risk whatsoever. The premium on the rate is about 40 basis points though. The other Wall Street lenders like NATIXIS and CIBC are continuing to focus on larger (in excess of $15MM) short term floating transactions. For 65% loans the spread over LIBOR ranges from 500 to 600 (mid to higher 8% range), For 75% the spread has ballooned to over 800 (mid 9% or higher).
Life companies are effectively out of the market through the end of 2008. More life companies are reporting that there may be cash flow issues for investment in 2009. With the dramatic decrease in the value of their stock portfolio the percentage of real estate has grown beyond the targeted allocation and therefore they will have less money for real estate investment. They may not even have enough money for renewals in their own portfolio.
Credit Tenant Lease Transactions got even worse since the last newsletter but have started to recover somewhat. The levels though are not nearly what they had been before. Walgreen’s deals can get done today at an overall rate of 7.9% for a fully amortizing 25 year loan (it is a hefty spread and no where near the spreads of 250 from 3 months ago). GSA deals are getting done in the mid 7% range for long term lease deals. The good news is that the underwriting has not changed. There is no loan to value constraint and the debt coverage can be as low as 1.0 times. GE Capital continues to be on the sideline.
FANNIE MAE AND FREDDIE MAC: Fannie Mae continues to be an active lender for multi-family product. Florida has been put on the Fannie pre-screen list which likely means maximum loan to value of 65% to 70% and debt coverage of 1.35 times. The overall spreads have increased in the past 60 days but the decrease in the US Treasuries mean that the 10 year rates are in the upper 5% to low 6% range. Freddie Mac is now only looking at deals $10MM and over.
Wednesday, October 15, 2008
Market Rate Watch
10 year treasury 10-15-08: 3.99%; 1 month ago 3.54%, 6 months ago, 3.67%; 1 year ago 4.57%
5 year treasury 10-15-08: 2.86%; 1 month ago 2.69%, 6 months ago, 2.79%; 1 year ago 4.23%
Wall Street: Wells Fargo remains the only lender looking at 75% loans. They will look at them on a 2, 3 or 5 year fixed rate basis. Today the rates range from 6.15% for the 2 year deal and 6.7% for the 5 year deal. The debt coverage requirement is 1.30 times and 30 year amortization is relatively standard. Wells has now financed over $1.2 Billion in their portfolio program. They are servicing all their own loans and the portfolio has minimal to zero delinquency. They are still not interested in hotels. The other Wall Street lenders like NATIXIS and CIBC are focusing on larger (in excess of $15MM) short term floating rate deals. For 65% loans the spread over LIBOR is about 375 (7.89% today), For 75% the spread is 4.25% (8.39% today).
Life company spreads continue to edge up and many are sitting on the sideline. More life companies have written off 2008 and are looking towards 2009 to start lending again. Spreads for the life companies have edged up to the 300 basis point spread range for loan terms anywhere from 4 years to 15 years. Longer terms are still available on a fully amortizing basis. Loan to values are still at a maximum of 65%. In addition deals generally need to be very vanilla and easy to understand. 10 year rates are close to 7% today.
Credit Tenant Lease Transactions have finally been impacted by the financial crisis. Interest rate spreads for Walgreen’s which were 270 in mid September have risen to over 370. In addition, GSA deals (US Givernment) which had been priced in the 215 range have risen to 325. This have effectively put the credit tenant lease lenders out of the market for now until the rescue plan works it way through the system. GE Capital is now officially on the sideline through the end of the year.
Agency Lenders: Freddie Mac is sitting on the sidelines at this point after the government rescue. Fannie Mae is still in business and quoting, approving and funding deals. Interest rate spreads are in the 270 to 280 range making the 10 year rates about 6.6%. Florida has been but on the Fannie Mae pre-screen list. So any DUS lender must get a pre-approval before sending out a loan application. That means tighter scrutiny and more conservative underwriting for Florida Multi-family deals.
Tuesday, September 2, 2008
Wells Fargo Raises Minimum Deal Size
Wells Fargo had been doing their portfolio program for deals as low as $3MM. They have now officially moved their minimum deal size for this program to $5MM.
Their current spread for a 3 year deal is 320 (that rate today is under 6%) and for a 5 year deal is 340 (6.50% today). They will go up to 75% loan to value with a 30 year amortization and of course this program is non-recourse.
The only option today for a non-recourse deal under $5MM is a life company. That means a loan to value of 65% at best and that is for the better quality deals. If the deal is not top quality then the life company will offer a lower LTV or will just pass.
National Cooperative Bank will do smaller deals (from $1MM to $15MM) but they want at least some level of recourse for a 75% loan to value. Their deal is a 9 year loan with a rate reset every 3 years at 250 over the 3 year treasury (but not less than 6.25%).
For Multi-Family deals Fannie Mae and Freddie Mac are still the best options. They can get to 75% and 80% loan to value. Florida has been put on Fannie Mae’s pre-screen list. Every loan application issued for a deal in Florida is now pre-screened by Fannie Mae.
Monday, August 11, 2008
MARKET RATE WATCH
10 year treasury 8-1-08: 3.95%; 1 month ago 4.00%, 6 months ago, 3.67%; 1 year ago 4.77%
5 year treasury 8-1-08: 3.24%; 1 month ago 3.32%, 6 months ago, 2.84%; 1 year ago 4.60%
Wall Street is back on the skids. Spreads for the long term (10 years) securitized loans are back to well over 400 basis points. That would make a 10 year rate today a whopping 8%. Wells Fargo continues to be the only player offering a fixed rate non-recourse 75% loan. Their spread for 5 year money is currently 350 (up from 325 in mid July) which puts the 5 year fixed interest rate right around 6.75%. They have been getting more attention lately on their 3 year fixed rate which has a lower spread of about 320, which makes the 3 year fixed rate today around 6% or a little under. Wells minimum loan size is $3MM but they prefer at least $5MM. No hotels.
Life company spreads have edged up as their allocations have been invested and markets started deteriorating again. Interest rates are in the higher 5% to lower 6% range for the shorter term loans (2 to 6 years) and to the mid 6% range for 10 year deals. Maximum leverage continues to be about 70% (effectively). Many life companies continue to remain on the sidelines and have told me that they are looking at 2009. Many life companies want to stay above $3MM but we do have a few clients that will do the $1MM and $2MM deals. Longer terms are available as well (15 to 25 years).
Credit Tenant Lease Transactions continue to be relatively stable. Walgreen’s credit has remained at a spread of 250 (over the interpolated 16 year rate). That makes the interest rate in the higher 6% range for a 25 year fully amortizing deal. Higher leverage (75% to 85%) is achievable for non-investment grade tenant deals through a division of GE. But their interest rates have increased back to the higher 7% range or they will do shorter term deals in the low 7% range.
ANOTHER FALSE START FOR LENDING MARKETS
After steady improvement and a return to some level of normalcy, the economic woes and soaring gas prices plunged the lending markets into chaos yet again. Spreads for long term loans had been under the 300 basis point spread range for 75% loan to value deals, and in the lower 200 basis point spread range for the lower-leverage life company deals. Spreads for these loans have bumped up 50 to 75 basis points since mid June.
But this time around there was another victim and that was Commercial Banks. Interest rate spreads for fixed rate loans had been in the 250 basis point range. These soared to 300 and in some cases well over, as capital preservation for banks sharply reduced stock prices, requiring a higher return on equity. Many commercial banks have simply retreated and are not making any new loans today.
At some point cooler heads will prevail. The commercial real estate markets are showing some weakness with rising vacancies in many sectors. There have also been some increases in loan delinquencies for commercial real estate loans, but they are still at historically low numbers (well less than 1%). With limited commercial real estate development over the past several years, most markets are in the best supply/demand conditions they have been in for 20+ years. Certainly far better than the late 80’s/early 90’s, which is the last time the markets saw interest rates spreads this high.
