MARKET STABILITY REMAINS ELUSIVE

There was a brief moment in late October when the permanent market seemed to be stabilizing and interest rate spreads moved to below 200 basis points. Activity level picked up and the end of the volatility seemed at hand. There was another brief moment in late December / early January when spreads stabilized in the 250 range putting the overall interest rates in the 6.2% to 6.3% range. The recent stock market tumble combined with the news of a nationwide recession (Florida has probably been in a recession for the past 3 months) put the securitization market back on its heels. 10 year rates from the securitized lenders are in the 7% range today.

Even when the markets do finally stabilize it is clear that securitized lending has changed fundamentally. Underwriting will be stricter and profit requirements will increase. Commercial Banks will take an increasingly expanding role in the financing of stabilized commercial real estate. 5 year fixed rate deals with at least some level of personal recourse will become more prevalent.

As I recommended earlier in 2007, unless you have a lower leverage deal that might fit a life company portfolio….now might not be the time to fix an interest rate for 10 years. BankAtlantic can provide 5 year fixed rates in the 6% range (we can also provide a 10 year loan with an interest rate reset after 5 years). These loans will have at least some level of personal recourse. These loans offer prepayment flexibility to minimize the refinance costs when the markets stabilize.

There are some securitized lenders like Wells Fargo who are also creating a bridge program that they will hold on their books. These loans will not have the same prepayment flexibility but will contain other benefits. (rates are subject to change without notice)