Although the treasury market remains in a “Relief Rally” after the debt ceiling extension and the flight from Europe, lenders are not following the rates down basis point for basis point. Instead some are simply imposing floors, widening spreads, or quoting a fixed coupon.


Institutional mortgage lenders have returned to the market in search of yield, but are not compromising quality. All indications are that 2012 should continue to be an attractive rate environment. Most lenders have additional allocations of funds although few reached their 2011 goals.


• Class A & B+ assets with attractive sponsorship qualify for the most favorable terms.
  
  
• 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 75% using current market rents and occupancy. CAP rate compression on Class A properties has subsided.
  
  
• Refinances of existing debt will likely require loan paydowns and higher loan constants.
  
  
• The conduit (CMBS) lenders are returning to the market, however on Class A properties they are not offering superior terms to those available from a life company. Re-pricing on interest rates and thus loan proceeds has been evident recently in the conduit loan process. Spreads are almost triple those quoted in Q1 2011.
  
  
• Uncertainty in the market has driven the 10-year treasury to the 2.0% range, it had been as high as 3.7% in February 2011. Real rates on short term treasuries are near zero. This level is widely agreed to be artificially low.
  
  

TERMS:

Some lenders are now considering forward commitments of up to twelve months. Premiums for this protection have increased but are still affordable, and provides incentive to interim lenders.

Some additional prepayment flexibility is available, although not as dramatic as when CMBS lenders were in the market.

SOURCES:

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

CMBS lenders have a very narrow focus and prefer larger portfolios and major markets.

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

MARKET TRENDS:

Retailers seem to recognize there will be fewer ground-up development projects and that focusing on existing core locations at market rents with fewer sessions and troublesome lease clauses are the practical solutions for store growth plans.

The dollar discount stores also have considerable expansion plans and have adapted store floor plans for available existing buildings be they older, small supermarkets, in-line drug stores, free standing drug store, and, in some cases, bank branches

SUGGESTIONS:

Carefully review casualty and loss of rent insurance policies and provisions. These need to at a minimum comply with lease and loan document requirements with respect to deductible, amount of coverage, carrier financial rating, and named insured.

Q10 | 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.

In addition to traditional mortgage loan placement, Professional Mortgage represents two institutions making selective acquisitions on both immediate and forward (presale) basis.

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.