It’s a Great Time to be a Borrower

The 10-Year US Treasury is currently at a 60-year historic low, hovering around 1.40%.  Life Insurance Companies are currently lending; Fannie Mae, Freddie Mac and HUD are still aggressively lending on multi-family; and the CMBS is market is back (Commercial Mortgage Backed Securities, also known as Conduit loans).  Life Insurance Company rates can be had somewhere around 4% – 4.50% fixed for 10-years.  Freddie and Fannie have 10-year rates around 3.75%, with HUD rates below 3% fixed for 35-years (plus 0.45% for Mortgage Insurance Premium, also known as MIP).  CMBS rates can be had for around 5% fixed for 10-years.  These assumptions are based on fuller leverage. 

 As stated above, all of our capital sources are lending, and that is a good thing.  Fannie/Freddie and HUD are lending to historic levels, and that is without as much acquisition activity as normal.  The fact that CMBS is back is a good thing, as this has opened up a new channel of capital back into the marketplace.  CBMS will lend on all property types and still has attractive debt.  The hope is that these lenders can pick-up loans that a Life company may not bid as aggressively for, including loans where leverage needs to be pushed or in markets that aren’t major metropolitan areas.

The big question is when are interest rates going to go up?  Since we are at historic lows, there is a lot of speculation that interest rates will rise.  But when?  They have been very low for quite a while.  With the economic woes of Greece and Spain, and an upcoming election, many people don’t think rates are going to move anytime in the near future.  What does that mean for you the borrower?  Take advantage now while rates are still low.  If you can’t make a deal work at these rates, then it isn’t a good deal.  One has to assume that eventually, rates will start to climb, and then the next question is where will they stop.

 It is still important to note that the fundamentals of underwriting are still very important.  Lenders aren’t pushing leverage.  They are really evaluating each loan as it relates to location, lease rollover, borrower strength and many other factors as it relates to making a real estate loan.  But if the fundamentals work, then you should be able to take advantage of some of the lowest long-term rates that we have ever seen.  As stated above, it is a great time to be a borrower.

 Please note, David Garfinkel is a NorthMarq Capital employee and the views and opinions above are his alone and do not represent the official views of the company.

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