• Based on the most recent Federal Reserve announcement, most economists expect the policy to keep short-term rates at historical lows to continue for at least six months, at which time it is likely that the short-term rates will move up in response to economic growth and potential inflation.
  
  
• Financial market conditions have become more supportive of economic growth, and the Committee anticipates that policy actions will contribute to a continued strengthening of economic growth and a gradual return to higher levels of resource utilization.
  
  
• The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent, and anticipates that the range will remain exceptionally low for an extended period.
  
  
• In order to provide support to the mortgage lending and housing markets, the Federal Reserve is in the process of purchasing $1.25 trillion of agency mortgage-backed-securities and about $175 billion of agency debt. This activity is scheduled to end in the second quarter of 2010.
  
  
• Institutional mortgage lenders are returning to the market in search of yield, but are not comprimising security.
  
  
• Lending programs should be more aggressive in 2010. Quality assets with attractive sponsorship qualify for the most favorable terms.
  
  
• Cap rates are rising and may continue to do so, however, hard assets are seen as having better relative value when inflation is taken into consideration. Impact of unemployment on rents and occupancies is a major concern across all property types and loan to value ratios are typically less than 70%. Debt coverage ratio analysis continues to be the primary evaluation technique.
  
  
• Refinances of existing debt will likely require loan paydowns and higher loan constants.
  
  
• Commercial banks have moderated terms significantly if they are in the market at all. The regulatory pressures have increased and capital is at a premium. Construction loans are increasingly more difficult to obtain.
  
  
• The conduit (CMBS) lenders are currently not a viable option.
  
  
• The 10-year treasury is in the 3.70% range. Real rates on short term treasuries are near zero. Many lenders are imposing floor rates, but are taking falling spreads on corporate bonds into account.
  
  
• The majority of the life insurance companies that we represent are more active in the commercial mortgage market and we anticipate this trend to continue in 2010. While valuations and loan amounts remain conservative, real interest rates and amortizations (and therefore, loan constants) are more attractive than at any point in the last 12 months.
  

TERMS:

Some lenders are now considering forward commitments of up to nine months. The availability of this interest rate protection was almost unthinkable during the first half of 2009.

Some additional prepayment flexibility is available, although not as plentiful as last year when rates were lower and CMBS lenders were aggressive.

SOURCES:

Insurance companies continue to be reliable sources on competitive terms. Loan structures are more flexible for Class A properties and low leverage requests.

Securitized lenders are no longer providing aggressive quotes, but volatile market changes continue to create uncertainty. A large volume of unsold CMBS remain and are getting stale by the minute.

Commercial banks provide attractive floating rates but with the associated recourse, equity requirements, capacity constraints and interest rate risk. Regulatory oversight is increasing, creating rapid changes in lending policies.

ISSUES AND OPPORTUNITIES TO CONSIDER:

Maturing loans at commercial banks will likely be subject to:

• Paydowns and increased interest rates for extensions, or
• Requests that loans be taken elsewhere
  
  In anticipation of these issues, borrowers need to make advance preparations. We can assist you with information assemblage and advice.
  
  Professional Mortgage Company continues to work closely with a select group of institutional investors to provide our customers with competitive and flexible terms, and our usual high level of service and innovation.
  
  As always, we are available to discuss specific transactions on a confidential and no obligation basis. We encourage our clients to consider a strategy of laddering loan maturities and structures as a way to mitigate the uncertainty of availability and interest rates on commercial mortgage funds.