Sources:  The Real Estate Capital Institute®, CNNMoney.com, US Federal Reserve.  Disclaimer:  The information contained herein is compiled from various sources deemed reliable, but is not guaranteed to be accurate and may contain typographical errors and/or be incomplete.  Quotation not permitted without written permission.

ANNUAL TREASURY/LIBOR

MONTHLY TREASURY

Prime Rate

30-Day LIBOR

Short Term as of

Long Term US Treasury                     Mortgage Rates

5-Year  Note

10-Year  Note

Mortgage Spreads over Treasuries (basis points)                      

Substantially discounted senior loan levels combined with eroding property values force legacy funding sources into difficult decisions in managing technical defaults, monetary defaults and loan maturities.   The stage is clearly set for workouts and recapitalizations well into next year, while new lenders are seeking high-yield opportunities with fresh capital for workouts/restructures, partner buy-outs, loan purchases and property acquisitions.  Also, multifamily and senior housing properties continue attracting low-priced/high-leverage Agency funds, while commercial properties attract capital with mixed results. 

In today’s tight credit market, important metrics for any financing ventures include:

· Quality Sponsorship:  Sponsor analysis is tantamount.   Lender must have complete information about a borrower’s portfolio performance and maturity schedule.  Full understanding required of assets, liquidity, liabilities including all contingent liabilities.  All information must be up-to-date, especially valuations.

· Reset Valuations:  Commercial real estate prices have dramatically declined by more than 30% from a year ago and well over 40% as compared to peak levels of 2007.  The most shocking is the steep plunge in prices for multifamily assets, historically considered the most immune sector in the industry.  Furthermore, even the most resilient markets in the country (e.g., Northern California) report fundamental weakness in demand.

· Changing Credits:  Although numerous credit tenants are contracting, newly forming tenants emerge including governmental agencies, academic institutions, specialty retailers, etc.

· Additional Leverage:  Mezzanine loans and preferred equity selectively offered for building up the capital stack.  Consideration of additional collateral and partnership interests for leverage enhancement.

 

In summary, overall market sentiment focuses on avoiding liquefying legacy projects unless absolutely mandatory.

December

2009

Updated: 12/1/2009 6:22 AM CST.  Copyright © 1983-2009 The Real Estate Capital Institute® LLC. All rights reserved.