January, 2009 - The Real Estate Capital Scoreboard®

Chicago, Illinois, January 2, 2009 - The last month of the year ended on a dramatic note as the Fed forced key short-term indices into record-low territory. Meanwhile, the ongoing shortage of real estate capital dampens any meaningful mortgage rate reductions.

Important market highlights and trends for 2009 are as follows:

* Funds Resurfacing: Select life companies are cautiously returning -- one of the bright spots in an otherwise bleak market. These institutions are primarily targeting highly conservative opportunities and lower-leverage acquisitions.

* Refinancing Reigns: Since the market remains illiquid with sellers and buyers quite far apart on bid-ask sale negotiations, refinancing is the only option for generating significant loan volume. For example, borrowers with five and ten-year loans due this year should expect to see rates at about identical levels to the marketplace on ten-year maturities as compared to 1999. Five-year maturities are about 150 basis points higher than in 2004.

* Absolute Rates: Due to benchmark rate volatility, most lenders avoid pricing mortgage rates over spreads and instead offer absolute rates.

* Volatile Indices: Overall mortgage rates drifted slightly upwards for shorter-term fixed-rate maturities (five years), as lenders demand a premium for locking into this highly desirable term. In contrast, longer-term benchmark rates dropped by about 20 to 50 basis points, while lenders react cautiously to any corresponding mortgage-rate drops.

* Steep Yield Curve: The treasury curve remains steep with short-term yields approaching zero, indicating an extreme desire for safety void of any principal repayment risk. Shorter-term indices dramatically plunged by about 75 basis points or more, particularly LIBOR which dropped by nearly 150 basis points.

* Dominant Players: The Agencies (FNMA and FreddieMac) overwhelmingly dominate the multifamily lending arena, which is the most active property-funding sector. The Agencies offer below rates starting below 6% for shorter-term maturities and below 5% for floating-rate debt. Life insurance companies and banks dominate all other income-property sectors with rates relatively unchanged from the previous month -- hovering in the 6%-plus range for five-year term and 7% or more for longer-term loans.

According to Nat Zvislo, Research Director of the Real Estate Capital Institute, "2009 looks to be a year of refinancing and with limited acquisition activity" Adding, "Distressed deals will be the norm for most new acquisitions and lenders will be overwhelmed with renegotiating overleveraged debt"

Contact Information

Nat Zvislo

Research Director

The Real Estate Capital Institute®

Contact via E-mail