MARKET RATE WATCH

10 year treasury 6-3-08: 3.99%; 1 month ago 3.83% , 6 months ago, 3.97%; 1 year ago 4.90%

5 year treasury 6-3-08: 3.31%; 1 month ago 3.10%, 6 months ago, 3.35%; 1 year ago 4.86%

Wall Street is stabilizing. For the past 8 weeks the spreads for securitized loans have steadily reduced as pools are brought to market. This is the longest period of stability since the turmoil started a year ago. Column Financial has joined Wells Fargo in being able to offer 10 year deals at 300 basis point spreads. That is for a 75% LTV with a 1.25 debt coverage ratio. The spread can be lower (maybe 20-30 basis points) for a more conservative loan. Wells can also still do the 5 and 3 year deals also in the 300 basis point range which put the interest rate today in the lower 6% range. The minimum deal size is $3MM for Wells Fargo and $5MM for Column Financial. Hotels are still a problem for the securitized side.

Life Companies rates are still ranging in the mid 5% range for shorter term loans (2 to 6 years) to the low 6% range for 10 year deals. Maximum leverage continues to be about 70% (effectively). Some life companies continue to remain on the sidelines. Most life companies want to stay above $3MM but we do have a few clients that will do the $1MM and $2MM deals. Longer terms available as well (15 to 25 years).

Credit Tenant Lease Transactions have been stable for the past 90 days. Walgreen’s credit has remained at a spread of 250 (over the interpolated 16 year rate). That makes the interest rate in the mid 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. The interest rate continues to be in the mid 7% range for these deals.

Multi-Family - FANNIE MAE is still the best choice for multi-family permanent loans. Spreads for 10 year deals are about 220 which put the rates today in the lower 6’s. Fannie Mae can also do 5 year deals at a spread in the 240 range (5.6% today). 80% loan to value is still available but coverage has increased slightly to 1.25 times. Fannie Mae will not consider a cap rate lower than 6.5% when calculating value. Supplemental fundings are key to these deals. You can build your LTV back up to 80% twice during the loan term AND if you sell the new buyer can get the loan back up to 80%. That basically eliminates the whole prepayment penalty risk.

$13,500,000 SINGLE TENANT CREDIT BRIDGE DEAL IN MIRAMAR, FLORIDA

BankAtlantic recently closed on a 5 year bridge deal for this client. They had a securitized deal fall apart due to the market volatility. We were able to quickly provide a fixed rate loan at a very competitive interest rate (in the mid 5% range) on this 81,000 square foot warehouse facility leased on a long term basis to a non-investment grade tenant. The deal included a 30 year amortization and the ability to expand the property by an additional 20,000 square feet. While the deal included personal recourse it also had a flexible FIXED prepayment payment penalty.

CONDUITS ARE STABILIZING – SPREADS ARE DOWN / RATES ARE UP

The past 60 days have seen steady improvement in the securitization market. However it has also seen the continued rise in the price of gas and the continued decrease in consumer sentiment. So the question from the lending side on both the recourse and non-recourse sides is how the continuing weak economy will affect commercial real estate. Will vacancies rise in all types of real estate and cause a significant increase in commercial real estate foreclosures?

The issue for the next few months then may be more of an underwriting question versus the availability of capital for permanent loans. At this point the delinquency on commercial real estate loans throughout the industry (life companies and securitized pools) is still at historical lows (but they have increased in the past 12 months).

Wells Fargo and Column Financial are both in the market for 10 year fixed rate non-recourse loans. Their spreads have dropped to about 300 over the 10 year treasury. That is down almost 300 basis points from just a couple months ago. There have been several securitized pools sell over that time and they have performed very well. Now that the pools with all the full term interest only deals and no reserves are gone, the new pools have more conservative underwriting. Wells also has 3 and 5 year money at the same 300 basis point spread.

Treasuries have run up about 50 basis points in the past month so the perm rates for 10 year deals are in the high 6’s to low 7’s. The Wells 5 year deal will be in the mid 6% range. If you can live with at least some level of recourse than the BankAtlantic bridge program can deliver a rate in the 5’s.