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| Weekly Interest Rate Tracking |
| October 31, 2008 |
Good Afternoon,
Attached is a PDF copy of Colliers Meredith & Grew's interest rate sheet that includes current and historical Treasury, LIBOR and Prime interest rates, which are updated daily with real time data from Strategic Alliance Mortgage.
We provide these updates on a weekly basis to keep our clients and colleagues aware of rate movements. We hope you find this information helpful.
DOWNLOAD INTEREST RATE SHEET (118KB)
The following Market Perspective provides insights and commentary on breaking news and emerging trends in commercial real estate finance.
Fed Cuts Key Benchmark Rates. By unanimous decisions, the FOMC cut the benchmark fed funds rate and its target for the discount rate by a half-point on Wednesday to 1% and 1.25% respectively. The Fed said "the pace of economic activity appears to have slowed markedly," and that "the intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit." In its statement, the FOMC indicated that due to "declines in the prices of energy and other commodities and the weaker prospects for economic activity," it expects "inflation to moderate in coming quarters."
Fed Buys $145.7 Billion of Commercial Paper to Start. Bloomberg (10/30/2008) -- "The Federal Reserve bought commercial paper valued at $145.7bn in the first days of the program aimed at backstopping the market, indicating the central bank is generating most of this week's record gains in short-term corporate borrowing. Two days ago, Fed policy makers cut the benchmark interest rate, the federal funds rate, by a half-point to 1%, matching a 50-year low. The discount rate was reduced to 1.25%, the lowest since 2002."
Mortgage Bankers Association Report: CMBS Refinancings Face Stone Wall in 2010. MBA (10/30/2008) -- "More debt capital needs to flow through commercial real estate (CRE) and strengthen credit, or refinancing difficulties will intensify within the next two years. “We expect refinance difficulties are going to intensify beginning in 2010 and we will begin to see losses show up en masse soon after that,” said Alan Todd, head of CMBS at JPMorgan Securities, New York. While residential mortgages have "forced triggers," such as hybrid 2/28 or 3/27 loans that placed borrowers under additional pressure earlier in the loan's life when it switched from interest-only to amortization, CRE has a much longer fuse than its residential counterparts, Todd noted. However, in the short term, transaction volume dropped significantly. Real Capital Analytics, New York, reported property sales falling by 90%. A widening bid-offer spread between buyers and sellers was one reason for sales declines. "Although the loans that needed to be refinanced in 2008 were able to do so, largely through insurance companies and banks, these institutions are now heavily overweight and facing their own pressures," Todd said. "Obviously, future refinancing at this point in time is uncertain." Todd noted that $17 billion of fixed-rate and $17 billion of floating-rate securitized loans need to refinance in 2009, up to nearly $55 billion annually by 2012, which include five-year loans from 2005-2007. "With this in mind, we expect commercial property values are going to decrease by roughly 25% to 30% from the peak to the trough as underwriting standards tighten and as lenders demand higher returns," Todd said. "Downgrades will increase through 2009 and affect many 2005-2007 fixed-rate mezzanine bonds and...AAA spreads will ultimately remain volatile until year-end."
The Emerging Trends in Real Estate 2009 report, released by Urban Land Institute and PricewaterhouseCoopers LLP, said lenders need to "force distressed owners to become motivated sellers." "The commercial mortgage-backed securities market must 'reformulate.' Regulators need to restore confidence in the securities market," the report said. While debt capital needs to flow, lenders will need to learn to deal in a more stringent regulatory landscape. "The government will insert itself into overseeing mortgage securitization markets and systemic overhaul promises more measured debt flow," the report said. From 2005-2007, excessive liquidity, low volatility and a benign economic outlook facilitated trades, but with changing economic conditions, tangible signs exist that commercial real estate fundamentals are softening, including slowing cash flow growth, rising cap rates and increasing vacancy rates, Todd said. JPMorgan Securities forecasts downgrades to increase through 2009. As credit tightens, consumers stop spending because of job concerns and stock and housing prices drop, Todd remains most cautious on hotels, retail, multifamily and office. "When you consider what is happening at the fundamental level within commercial real estate, it paints a picture of less credit strength that has only just begun," Todd said. "What we have seen to date is only the tip of what we are going to see over the next several years if we continue along the path that we are now."
Colliers Meredith & Grew Perspective. The CMBS bear market is going nowhere fast. The third quarter saw the departure of prominent CMBS lenders such as Bear Stearns, Merrill Lynch, Lehman Brothers, AIG and Countrywide (among others). This market will continue to consolidate.
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| Please contact the Capital Markets Group at Colliers Meredith & Grew with any financing questions.
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Colliers Meredith & Grew is a Boston-based commercial real estate company with integrated service groups including Brokerage, Capital Markets, Counseling & Valuation, Development & Advisory, Investment Sales, and Property & Asset Management. In addition to representing its core clients in New England, Colliers Meredith & Grew provides national and international real estate services to its multi-market clients as a member of Colliers International and as an owner/member of Strategic Alliance Mortgage LLC (SAM). Colliers International is a worldwide affiliation of independently owned and operated companies in more than 290 offices in 61 countries. |
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