Interest Rate News

The Commercial Real Estate lending markets are evolving. During the economic downturn, CRE mortgage rates have generally stayed in the traditional 5% to 7.5% range. However, many borrowers found that their previous financing was overleveraged for the new environment, so they had two primary options: 1) More equity in deals, or 2) Mezzanine financing was accessed, typically in the 15% to 20% range. However, Mezz debt pricing has recently dropped to the 10% to 13% range, allowing borrowers more leverage to raise more equity for a new first mortgage.

Today, the Dow is surging, TALF is fading away and banks are paying off their TARP loans. Even the CMBS markets are showing signs of thawing, with the first $500 million securitization expected in April. All of these factors contribute to higher market confidence, thus lenders are returning to the table with renewed commitment to invest.

This doesn’t mean we are totally out of the woods (job growth, delinquencies, etc), but we have reason to be optimistic. Lenders have altered their risk tolerance, which means most are back in the game. Conservatively underwritten deals are currently getting done at favorable interest rates, allowing much needed capital to flow back into the CRE marketplace.