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NOTES ON QUOTES: Capital Markets Update

By Steve Mench

Director of Capital Markets

Front Street Commercial Real Estate Group

 

Like the bond and stock markets, the commercial real estate capital markets have experienced some recent volatility.

Life insurance companies continue to be a stable source of commercial real estate capital.  On Class A assets in prime markets they are offering incredibly low rates—as low as 3.75% on a five year fixed basis and 4.50% on a 10 year term.  While these rates are available for the best assets in the strongest markets, rates on other property classes and secondary markets are still very attractive in the range of 5.50% to 6.00%.

Like the life insurance companies, the federal agencies (Fannie Mae, Freddie Mac and FHA) continue to provide capital at very attractive rates and terms for multi-family assets.  Rates for 10 year terms are currently between 4.50% and 4.75% and rates for 5 year terms are between 3.50% and 3.75%.  While there has been some discussion in Congress about eliminating and/or consolidating the agencies, the current economic climate will likely delay any serious discussions.

Rates on 10 year CMBS (Collateralized Mortgage Backed Securities) loans widened in the past 60 days from approximately 5.50% to about 6.25%.  Chances are the volatility will continue until the overall financial markets stabilize.

Commercial real estate equity largely continues to stand on the sidelines.  Apartment development appears to be the exception.  The primary markets in Florida, such as South Florida and to a lesser degree Tampa and Orlando, are getting the attention of national and regional developers.  Additionally, the opportunistic funds continue to look for bargains on over-leveraged properties through foreclosures and / or note purchases.

 

Steve Mench is a 24 year veteran in commercial real estate and has completed nearly $750 million in both debt and equity transactions throughout his career. Prior to joining Front Street, Steve was a Vice President with Grandbridge Real Estate Capital in Ft. Lauderdale and Orlando.  Steve can be reached at stevem@frontstreet.net