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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
For more information, please visit http://www.gale.com.
