MARKET RATE WATCH
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%
1 month LIBOR 2-2-09: 0.41%; 1 month ago 0.45%, 6 months ago, 2.45%; 1 year ago 3.27%
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.
