Spreads widen in apartment, retail categories

Real Estate Finance and Investment

December 8, 2003

Commercial mortgage rate spreads widened slightly in the multifamily and retail categories over the past month. At the same time, there is more activity in the hospitality sector. "We are not sure if this is a function of an improving economy but in many markets rates and occupancies are at more stable levels. In some cases they are even improving slightly," said Gregg Hayden, president of United Atlantic Capital. On top of this, cost cutting seen over the past two years has made hotel owners and operators smarter and more efficient managers. "Sluggish growth and a competitive environment have forced hotel owners to be more creative on the marketing side in order to attract and retain customers," he added.

Other product categories, such as retail, are spotty. The higher-end names continue to weather the recession and Target and other big box retailers also continue to do well, Hayden noted. Still, he noted that recent results from powerhouse Walmart show some weakness with large retail credits. "It is too early to tell if this will be at all contagious as retailers are hoping for a better year-over-year performance during this holiday season," he said.

As far as mortgage rate spreads are concerned, spread changes in other areas of the matrix are subject to the fourth quarter results and what the New Year brings in terms of new institutional lending programs and/or opportunistic and mezzanine funds. Lending volumes still remain low when compared to the past few years and the markets remain relatively liquid. "Should the equity markets pick up as a function of an improved economy, look for some of the liquidity now available to real estate lenders and investors to lose ground to the more liquid stock and bond markets," Hayden said.

Senior Mortgage Matrix 10/22/03-12/3/03

3-5 YEAR

FLOATING-RATE MORTGAGES

(INDEX: LIBOR) PROPERTY TYPE

65%LTV

Residential

175-250 180-275 Apartments

Retail

210-325 190-325 Malls

225-275 240-350 Strip & Powers Centers

Industrial

180-235 195-250 Multi-Tenant

Office

185-250 210-275 CBD

170-250 210-275 Suburban

Hotel

285-400 285-400 Luxury

258-400 285-400 Commercial

3-mo. LIBOR 1.17% (1.17%)

6-mo. LIBOR 1.28% (1.24%)

5-10 YEAR

FIXED-RATE MORTGAGES

(INDEX: EQUIVALENT MATURITY TREASURES) PROPERTY TYPE

65%LTV

Residential

140-250 200-275 Apartments

Retail

160-315 225-325 Malls

160-310 250-400 Strip & Power Centers

Industrial

185-265 195-265 Multi-Tenant

Office

200-275 250-350 CBD

170-275 200-375 Suburban

Hotel

285-400 285-400 Luxury

285-400 285-400 Commercial

5-year Treasury 3.45% (3.24%)

10-year Treasury 4.41% (4.29%)

* Indicates there has been a change from previous month. Numbers in

parentheses are October-November figures.

Secondary Financing Matrix 8/23/03-9/23/03

DEBT PROVIDER RATE/SPREAD TERM LTV RANGE (%)

Private Funds 10-15% 1-5 years 75>95

Investment Banks

Commercial Bannks

Insurance Companies

Capital Funds 16-20% 1-3 years 75>90

Mezzanine Funds +350-750 b.p. 1-5 years 80>95

DEBT PROVIDER CONDITIONS

Private Funds Investors with a need to place mezzanine debt

Investment Banks on terms comparable to first

Commercial Banks mortgage financing yet with incremental yield

Insurance Companies relative to the loan to value.

Subordinate financing is available in the form of the A/B structure or pledged partnership interest.

Capital Funds Investor seeks overall return greater than 18%



on short-term mezznine financing. Investor may seek equity participation. Upfront fees range from 1%-3%.

Mezzanine Funds Investor seeks maximum returns in the high teens but may take less in certain transactions. May require 5-10% of borrower equity in the deal, which will have maturities ranging from one to five years.

Upfront fees and exit fees will vary depending on the deal.

Source: United Atlantic Capital

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