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| Weekly Interest Rate Tracking |
| November 12, 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 (181KB)
The following Market Perspective provides insights and commentary on breaking news and emerging trends in commercial real estate finance.
Portfolio lenders can be classified into 3 categories: ACTIVE, ON-HOLD and OUT OF THE MARKET.
ACTIVE: Active life companies are pursuing new business opportunities, taking advantage of the down market to bring in new clients. Challenged by ongoing market volatility, these lenders are primarily cherry-picking only “cream puff” deals in submarkets with the strongest fundamentals. Those that decide to test the waters will require underwriting standards that include sub-65% LTV/LTC constraints, stringent debt service coverage ratios, substantial in-place cash flow, minimum tolerance for near-term rollover risk and superior sponsorship.
Pricing will reflect the widening of spreads that has occurred. Spreads on the highest quality transactions now range from 350-500 bps over treasuries – nearly double that of one year ago. On a positive note, the recent flight to safety of government debt has pushed yields on treasuries to near-historically low levels, thereby keeping all-in coupon rates on whole loans only slightly higher than one year ago.
ON-HOLD: These portfolio lenders are closing some loans that were in the pipeline, but otherwise are content to sit on their hands for the rest of the year. Originators at these institutions are poised to pursue new deals, but due to a lack of pricing transparency in the market, their ability to price and lock rates on new deals has been frozen (for the most part) by investment committees. There is still money to be placed but these portfolio lenders are being prudent and waiting for the markets to stabilize before committing any more capital in a volatile lending environment.
OUT OF THE MARKET: For every “active” and “on-hold” lender still in the market there seems to be a counterpart that has either called it quits for the balance of the year or closed up shop for good. Those that have left the market are no longer quoting business or accepting applications for 2008.
Paulson Shifts Focus of TARP to Bolster Consumer-Lending Market. (Bloomberg) 11/12/08 – Bloomberg reports, the Treasury and Federal Reserve “are scrapping an effort to buy devalued mortgage assets. Secretary Hank Paulson said buying ‘illiquid’ mortgage-related assets is no longer being considered…Our assessment at this time is that this is not the most effective way to use TARP funds, but we will continue to examine whether targeted forms of asset purchase can play a useful role,” he said, referring to TARP.
Treasuries Rise for Second Day; Two-Year Yield at Five-Year Low. (Bloomberg) 11/12/08 – Treasuries rallied on Wednesday, pushing 2-year note yields to 5-year lows at 1.19%. According to Bloomberg, “yields indicate banks are less willing to lend to each other. The difference between what they and the Treasury pay to borrow money for 3 months, the so-called TED spread, widened to 1.91 percentage points, from 1.75 percentage points yesterday. The spread expanded to 4.64% on Oct. 10, the most since Bloomberg began compiling the data in 1984. Futures on the Chicago Board of Trade show a 92% chance the Fed will lower its 1% target rate for overnight bank lending by 50 bps at its Dec. 16 meeting. The odds were 50% a week ago.”
U.S. Pressures Banks to Keep Up Lending, Warns on Dividends. (Bloomberg) 11/12/08 – The Federal Reserve and other U.S. regulators told banks to maintain lending to “creditworthy” borrowers, and warned them against levels of dividend payments that would curb lending and cause a deeper economic slump. Government supervisors “will take action when dividend policies are found to be inconsistent with sound capital and lending policies,” according to a joint statement today from the Fed, FDIC, Office of the Comptroller of the Currency and Office of Thrift Supervision. Dividends shouldn't be at a level that would hurt a bank's ability “to meet the needs of creditworthy borrowers.” Regulators will “encourage” banks to “practice economically viable and appropriate lending activities” to avoid deepening the economic downturn, the agencies said. They also urged lenders and servicers to adopt “systematic” ways to modify troubled loans. In addition, banks' executive compensation policies should “prevent short-term payments for transactions with long-term horizons,” the statement said.
The Credit Crunch & Retail - The dominoes begin to fall. (CNNMoney.com) 11/10/08 – The ongoing lockdown of the capital markets coupled with a seismic slowdown in consumer retail spending has pushed General Growth Properties, Inc. (NYSE: GGP), the nation's second largest mall operator, to the brink of bankruptcy, according to a quarterly report filed by the REIT on Monday with the SEC. According to CNNMoney.com, GGP “has struggled to refinance its debt amid the worst financial crisis since the Great Depression. The REIT relied heavily on short-term debt to finance acquisitions earlier this decade…and is paying a heavy price for that strategy as loans mature and financing options dry up.”
Compounding GGP's problems, “Circuit City Stores Inc. filed for Chapter 11 bankruptcy protection Monday. The filing fueled concerns that the electronics retailer will use the bankruptcy process to break leases at shopping malls owned by General Growth and other landlords.”
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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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