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18A — April 25 - May 15, 2014 — Spring Preview — M id A tlantic
Real Estate Journal
M ortgage M arkets By Joseph Gore, Capital & Venture Resources CRE mortgage markets: Yes, Virginia, there is a Santa Claus
T he CRE debt markets are alive, kicking and in fighting shape. Even
of 3.5% to 4.25%. The money center banks, for the most part, are not par- ticipating in the fun as they navigate a harsh regulatory environment. The insurance companies offer remarkably low rates but don’t win many deals because of their conserva- tive underwriting. The CMBS market is useful, particularly for some of the asset classes not currently in vogue. However, irony of all ironies, the rating agencies, who I believe gavemy Cousin Vinnie’s deluxe 22-seat popsicle stand a AAA rating in 2006, are hammering Wall
Street and dinging the pricing due to the lenders’ perceived lack of underwriting skills. Pretty funny… The action, however, is rip- roaring when dealing with the not-too-big-to-fail banks. Pric- ing, underwriting and execu- tion trends are all favorable to the borrower. Seven-year money on solid deals is around 3.5%. Multifamily is being un- derwritten to 75% with most other property types at 70-75%. The underwriting amortization is typically 25 years, except multifamily which is usually 30 years. We are also starting
to see some Interest Only (one or two years). The United States is the country of choice for investors and the dollars are pouring into the system as people seek safety. As mentioned previ- ously, the excess liquidity has pushed spreads to extremely low levels. Junk bond yields and Greek 10-yr bonds are yielding less than 5%. When we experience the inevitable hiccup from the current mis- pricing of risk, it is my opinion that additional money will flow into debt secured by com- mercial real estate. We see this
compression of spreads across all markets. The hard and quasi-hard money rates have declined by up to 40% on deals with a “story.” Barring any unforeseen “events” (Vladmir, etc.), the short and medium term outlook for our market is rather stellar. The famed philosopher Yogi Berra once opined, “The future ain’t what it used to be.” And to that point, I say thank goodness. One final thought: with the flattening of the yield curve, it might be time to look at ma- turities of 10 years or longer. A wise man told me you never go broke by taking a profit. If you can get past the phantom income it may be prudent to put some deals to bed. The grandkids will thank you. Joe Gore is director of Capital &Venture Resourc- es, a boutiqueCREadvisory firm. He has over 30 years of commercial real estate finance experience. n Commercial prop. transactions could reacha ten-yearhigh WASHINGTON, DC — A new U.S. real estate forecast based on a survey of 39 of the industry’s leading economists and analysts predicts that com- mercial property transaction volume will reach $430 billion by 2016, exceeding the volume of 2006. The latest multi-year outlook (covering 2014 through 2016) from the Urban Land Institute (ULI) and EY proj- ects steady growth for the U.S. economy; sustained strength fromreal estate capitalmarkets; and continued improvement in both commercial real estate fundamentals and the housing sector. The findings were released in the semi-annual ULI/E&Y Real Estate Consensus Forecast, prepared by the ULI Center forCapitalMarketsandReal Estate . The overall industry outlook remains positive. The issuance of commercial mortgage-backed securities (CMBS) is expected to continue its reboundwithconsis- tent growth through2016. Hotel occupancy rates are expected to continue improving, while vacancy rates are expected to decrease modestly for office, re- tail, and industrial properties. In addition, the forecast expects a turn-around in 2014 with retail rental rates, turning positive for the first time since 2007. n
though the 5-yr and 10- yr Treasury rates have risen 93 bps and 62 bps, respectively, over the last 12 months, the search for
Joseph Gore
yield has led to skinny spreads and very little change in rates. For good solid deals, 7 and 10- year non-recourse money is generally trading in the ranges
Capital & Venture Resources, Ltd.
RECENT TRANSACTIONS
Amity Garden Apartments Douglassville, PA 194 Units $9,500,000
Governor Sproul Apartments Broomall, PA 272 Units $25,000,000
Cherry Hill Towers Cherry Hill, NJ 434 Units $42,500,000
So. Jersey Portfolio Camden & Burlington 1,110 Units $50,000,000 Blanket Mortgage
The Commons at Fallsington Morrisville, PA 463 Units $31,500,000
Wellington Woods Apartments Morrisville, PA 257 Units $16,000,000
Creative Capital for Commercial Real Estate
Capital & Venture Resources, Ltd. 52 State Highway #33 Suite C Hamilton, NJ 08619 Phone: 609-587-1400 | Fax: 609-586-8732
Email: joe.gore@capitalvr.com
www.capitalvr.com
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