WORLD PROPERTY CHANNEL ®

(CHICAGO, IL) - That silver lining commercial real estate players have been looking for may be in the works, according to newest data today from The Real Estate Capital Institute of Chicago.

"The Fed's aggressive action of pumping more liquidity into financial markets is starting to reinvigorate real estate lending," notes Nat Zvislo, RECI's research director.

"Helped by TARP funds, select financial institutions are offering competitive short-term loans. Furthermore the Treasury yield curve moved downward by about a half percent during the past month, easing overall pricing."

John Oharenko

John Oharenko, a Real Estate Capital Institute's advisory board member and vice president of GMAC Commercial Mortgage's Chicago office, is even more positive on the market.

"Pricing discussions are returning to absolute rates, rather than quoting spreads,"  he says. "The limited universe of active lenders fully dictate terms, including establishing minimum pricing thresholds which are not necessarily linked to specific indices such as Treasurys or LIBOR."

Oharenko adds, "Expect to see lower mortgage rates for 2009 as the Fed continues a monetary blitz of helping banks and other financial institutions return to the market to recreate more competition and liquidity." RECI notes these current income-property mortgage pricing and underwriting trends:    
 

• While liquidity remains a key concern, overall interest rates are moving downward.

• Despite wild fluctuations in key indices (e.g., LIBOR), keeping track of pricing is becoming less challenging as numerous funding sources impose rate floors.

• Floating rate debt starting at 5% is among the most competitive pricing options available, while most types of longer-term financings start at 6%.

• Subsidized by agency funds, multifamily properties attract the lowest price debt, while office, industrial and retail properties capture pricing that is at least 25 to 75 basis points higher. 

• Debt service coverage restrictions start at 120% for acquisitions and 125% or more for refinancings.

And while debt service coverages remain somewhat constant, shorter amortization schedules of 25 years or less are used as additional underwriting safety measures along with overall lower-leverage underwriting of 65% of value (apartments are still funded in excess of 70%).