The Year of the Investor: Active Funding Sources Meet Competitive Pricing in 2015
Taking stock of the first half of the year, ATALYST has been involved in several transactions that show the continued strength in the credit markets. Representative transactions include the following:
- ATALYST arranged an institutional loan for a 61 unit class C multi-family property. Proceeds for this loan were set at 70% LTV. Pricing was fixed at 3.79% for ten years. The loan repayment is being amortized over 20 years. The loan carried limited recourse and attractive pre-payment provisions. Multi-family remains the most favorable asset class and lenders are chasing deals.
- ATALYST arranged a senior bank loan for an unanchored retail strip center. Proceeds were set at 65% LTV. Pricing was fixed at 4.75% for 10 years. The loan repayment is being amortized over 20 years. Pre-payment was structured as a 3-2-1 penalty with no lockout period.
Overall economists have pulled back corporate growth estimates, which has led to a consensus view that inflation will remain within the Federal Reserve’s target for 2015. The Federal Reserve seems to echo that rate actions are likely in the second half of 2015 and yields have been increasing over recent weeks.
Capital markets remain accommodative for U.S. commercial real estate with all the major lenders, including banks, conduits, life companies and the agencies increasing their exposure. The competition remains stout and we may see spreads compress further and/or terms become more aggressive in the second half of 2015. Lending rates should stay low even if benchmark interest rates trend higher.
The CMBS market remains highly competitive. Lending totaled $94bn in 2014. The industry is expecting an increase to approximately $120bn in 2015. There are approximately 40 CMBS shops that are fiercely competing for business.
Construction lending is getting more competitive. Expect more non-recourse alternatives to crop up in 2015 for lower LTC and strong sponsorship deals. Borrowers with limited experience or legacy credit issues can likely achieve limited recourse beyond completion guarantees and bad boy carve outs. We are still range bound between 70%-75% LTC from banks depending on the project and sponsor with mezzanine borrowers pushing levels in excess of 85% LTC. Rates are typically 3.5% to 4.5% and 60%-65% pre-leasing is the norm for office and retail.
We have relationships with well over a hundred debt capital sources including banks, insurance companies, CMBS and specialty lenders. Please contact us to discuss your mortgage lending needs.
Market Information As of 6/10/15
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