2014 12 The Real Estate Capital Scoreboard®

2014 12 The Real Estate Capital Scoreboard®. The Ins and Outs of Real Estate: Mortgage Rate, Rentals, REITs - Rational Reminder Podcast - EP. 58

2014 12 The Real Estate Capital Scoreboard® video duration 3 Minute(s) 8 Second(s), published by RECI on 15 07 2019 - 13:36:53.

Chicago, Illinois, December 1, 2014 – The commercial real estate industry is driven by low interest rates, as attractive property values are maintained through Read more here: http://pmglending.com/loubarnes/credit-news/ Lou Barnes Mortgage Banker (303) 302-3837 lbarnes@pmglending.com Lou Barnes is a .

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The profit On this week's episode, Benjamin and Cameron are talking real estate, specifically mortgage rates and REITs
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Chicago, Illinois, December 1, 2014 – The commercial real estate industry is driven by low interest rates, as attractive property values are maintained through aggressive of both debt and equity capital. And this property values climb, in some cases peaking, money continues to flow into this investment sector. Major trends in the CRE capital markets are noted below:

Stable treasury yields are helping. During the past couple of weeks, rates flattened out, as spreads between the five and 10 year treasury remain at about 70 basis points, nearly half the difference from a year ago, but above the average of 60 basis points. Such treasury behavior clearly shows how monetary policy is influencing the slope of the yield curve. Strong demand for longer-term debt exists, as global investors look for “safe haven” capital. A tightening of the monetary policy usually means a rising short-term interest rates, typically intended to lead to a reduction in inflationary pressures.

Declining Mortgage Spreads. The direct result of an oversupply of capital is declining mortgage spreads. Mortgage yields are edging downward and about 10 basis points narrower than the average for the past three decades. Except for lodging and special-purpose properties, rate premiums are almost nonexistent among various property types, as improving market fundamentals drive more demand for funding a wider variety of commercial properties.

Rationalizing Risk. Bullish optimism continues to chase down yield. While profits breed competition, seeking excess profits can ruin it. Today’s markets clearly surpassed 2007 yield benchmarks with sub 4% annual returns acceptable to many foreign investors driven by equity multiples, rather than yield. New construction is a profit frontier measured by low teen returns, as well as 100 to 250 basis points development yields versus exit capitalization rates. However, the biggest profits are hidden in repositioning and upgrading existing holdings, with returns often exceeding 50 to 80%. On the debt side, lenders and investors rationalize that the low rates on CRE debt remain well over that of “risk free” investments and feel they are compensated appropriately for investing in this sector. Lenders are quick to institute floors if they feel base rates are dropping too quickly or deeply, thus protecting a perceived downside to the lower rates they offer.

Ms. Jeanne Peck, director of the Real Estate Capital Institute®, observes, “Mortgage rates are tight across all varying loan terms driven by lower treasuries and the overall perception that commercial real estate represents safety versus higher yield.”