10A — May 11 - 24, 2012 — Financial Digest — Mid Atlantic Real Estate Journal
www.marejournal.com
F inancial D igest
By Bruce J. Coin, Bruce Coin Consulting, Inc. The current commercial mortgage market
T
he Federal Reserve’s Open Market com- mittee on April 24th
realized that there is no im- minent threat of a “double dip” recession and that the economy is truly on the verge of a self-sustaining recovery notwithstanding the “oil price” wildcard. The GDP is growing at a rate of 2 percent or better and while not the roughly 3 percent seen for 2011 it is a positive upside statistic. The “Fed’s “target for this year is about 2.6 percent. Nationally, unem- ployment has fallen below 9.0 percent. Consumer and business spending are the
sustaining forces. Automo- bile sales are up dramatically increasing from about $6 mil- lion in sales during the recent recession years to about $14 million last year. For many years economic growth was backed by auto sales and new construction. If that latter contributor starts perform- ing the economy will really pick up. As guidance, and certainly with exceptions, I am seeing interest rates for commercial mortgages being provided in the very wide range of 3.75
percent to 6.00 percent for most well (90 percent) leased income properties. 5 and 10 year balloon terms are most prevalent for multitenant properties. The lowest rates and highest loan to value ratios are being obtained by quality multifamily proper- ties and long term net leased single tenant credit leased transactions. Overall “cap rates” for apartments are running at about a full 1 per- cent or more below those for other property types. Some multitenant offices with less
than 90 leasing are being fi- nanced but at levels of 60-65 percent LTV. Rates increased by about a quarter point since late March but should soften again. The rates jumped be- cause the benchmark 10 year treasury increased from sub- 2.00 percent to 2.38 percent by March 19th. The treasury has steadily declined since then. As of April 26th it was back under 2.00 percent. It appears to be a nervous in- vestor market over-reacts to the slightest bit of bad news, local or worldwide. The agencies, Fannie and Freddie, for the right prop- erty, will offer close to 80 percent LTV financing and with 30 year amortizations. A DSCR of 1.20 seems achiev- able and if not then 1.25. I am seeing credit leased financing transactions still being un- derwritten with DSCRs as low as 1.05 times. Insurance companies and many banks are all active. CMBS II is struggling for a comeback after an early year start that tailed off but sooner or later that will rebound. Apartment construction is on the upswing as lend- ers see increased demand. Supporting the need for new apartments is a recent state- ment by the Mortgage Bank- ers Association’s that “ We’re generating an average of one million new renter house- holds per year”. In mid-April over 400 members of the real estate finance committee met in Washington to discuss the future and to try to again define a “QualifiedMortgage” and the related “premium re- capture” concept. It appears to me that the Dodd-Frank Act erred by opening the door for such a loop hole. If every lender selling a loan had to retain a 5 percent first risk of loss position, with no ex- ceptions, the problem would not exist. They would either hold loans “on book” or if they decided to sell they would take the risk. There would be no fear that lenders would “discriminate” and only take “qualified mortgages” and thus adversely impact cer- tain borrowers. Bruce J. Coin is director of Bruce Coin Consulting, Inc. n
and 25th , as expected, aga i n l e f t short term i n t e r e s t rates alone. That is con- sistent with their earlier statements t h a t t h e y would keep rates low through 2014. I think “everyone” now has Bruce J. Coin
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