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| Weekly Interest Rate Tracking |
| November 21, 2008 |
Weekly Interest Rate Tracking will not be distributed next week due to the holiday schedule, but will resume on Wednesday, December 3rd.
From everyone at Colliers Meredith & Grew, have a wonderful Thanksgiving.
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 (145KB)
The following Market Perspective provides insights and commentary on breaking news and emerging trends in commercial real estate finance.
COLLIERS MEREDITH & GREW PERSPECTIVE — A little over a year ago, times were good as the real estate finance industry was churning at full tilt and capital was easy. Times have changed. Over the past week, Treasuries rallied to 20-year records as the Dow fell below 8,000, U.S. life insurers pursued recognition as savings-and-loan holding companies and investors further punished the CMBS market upon rising concerns that defaults are mounting. On a more positive note, despite the unprecedented events of recent weeks, there are still domestic and international capital sources with money to be placed.
For the most part, portfolio lenders are out of the market until 2009. While due in part to the inability to price loans, the fourth quarter is historically slow for life insurers as their annual capital allocations have largely been deployed prior to year's end. A number of insurers anticipate a return to the market in early 2009 with many having indicated they expect allocations to remain consistent with 2008 levels. Hard money, bridge lenders remain active in today's market. These firms are still funding deals at LTV ratios up to 65% with flexible loan terms and an appetite for most food groups (office, retail, multifamily, industrial). Pricing will reflect the widening of spreads that has occurred and will typically start at rates which vary from 9% - 20%+, depending on the deal. Local and regional commercial banks remain a reliable source for capital and have taken advantage of the down market to bring in new clients.
TREASURIES GIVE UP BIGGEST WEEKLY GAINS IN 2 DECADES — Treasuries fell across the board this morning as investors returned to the equity markets following yesterday's selloff. (The Dow closed at 7,552 points on Thursday, a 440+ point drop over the previous day's close and its lowest level in nearly 6 years). As of 12:00 p.m. EST, yields on 10-year notes had fallen nearly 5.7% to 3.199 (Source: Strategic Alliance Mortgage), "paring the biggest weekly gain since the market crash of 1987, after European and Asian stocks rebounded," according to Bloomberg.com's Treasuries Fall, Eroding Biggest Weekly Gain Since 1987 Crash.
RETURN OF CAPITAL TRUMPS RETURN ON CAPITAL — A remarkable trend has emerged in the intraday trading markets, investors, with almost zero tolerance for risk, have pushed yields on certain intraday trades into negative figures. (For graphical representation please reference the SWAP Spreads chart by downloading this week's interest rate sheet). According to Bloomberg.com, "Christopher Rieger, a fixed-income strategist in Frankfurt at Dresdner Kleinwort" said "investors are more concerned about the return of their capital than the return on their capital." Bloomberg.com further stated that "futures on the Chicago Board of trade show 28% odds policy makers will lower the 1% target rate for overnight lending between banks to 0.25% at their next meeting on Dec. 16, compared with zero odds a week ago."
U.S. LIFE INSURANCE INDUSTRY SET FOR SIGNIFICANT STRUCTURAL & REGULATORY CHANGES — In a last minute bid to apply for federal aid under the U.S. Treasury's $700 billion Troubled Asset Relief Program, or TARP, several major state-regulated U.S. life insurers agreed this week to purchase small federally regulated banks and thrifts to gain access to bailout capital. U.S. life insurers, faced with tanking investment portfolios (many tied to CMBS) and pending credit rating cuts, have been forced to pursue capital injections by any means necessary in order to avoid further punishment in the equity markets where insurance stocks have been pounded this past year. And with the credit markets in chaos, many U.S. insurers have taken the radical step of applying for federal bailout funds by converting to savings-and-loan holding companies subject to federal regulations, following the precedent set by American Express and Goldman Sachs earlier this month.
According to Strategic Alliance Mortgage, on Monday, Hartford Financial Services Group reached a deal (in principal) to purchase Federal Trust, a federally chartered, FDIC-insured savings bank. The ownership of the bank is contingent on Hartford's approval as a bank by the U.S. Treasury and would satisfy one of the key eligibility requirements for participation in TARP. Other U.S. insurers including Genworth, Lincoln National and AEGON NV's U.S. insurer Transamerica, have taken similar steps. Genworth, which has been battered by a perfect storm of soaring claims and declining premiums, while at the same time its $1bn+ CMBS portfolio was hit with further markdowns, agreed on Sunday to acquire Inter Savings Bank, a Minnesota-based thrift. Lincoln National has its sights set on Goodland, Indiana-based Newton County Loan & Savings while AEGON's Transamerica has moved to purchase Suburban Federal Savings Bank of Crofton, Maryland.
"While it remains early in the process, the actions of the past few days" (as stated above) "suggest a potentially significant change in the way the insurance business will be structured and regulated. For one thing, access to TARP funds requires levels of federal oversight that currently don't apply to all insurance holding companies. The insurance business is state regulated. But the government fund is open to financial companies that are federally regulated. So insurers seeking TARP cash that aren't already federally regulated holding companies must first apply for that status. One route to federal regulation involves buying a thrift. Once under the federal umbrella, assets across all of its units would figure in the calculation for an allocation of capital through TARP. The companies' insurance units would remain state-regulated. The inclusion of insurers in TARP would mark the latest evolution of that program, which has been rapidly broadened by the Treasury since being passed by Congress in October. Though not initially promoted as a helping hand for insurers, the change would fit with the Treasury's stated goal of stabilizing global financial markets." according to WSJ.com's Insurers Buy Banks in Effort to Get Aid.
REPORT: CMBS DEFAULTS & THE NEXT PHASE OF THE CREDIT CRUNCH — The market for commercial mortgage backed securities (CMBS) was rocked this week by mounting concerns that CMBS defaults are on the rise. According to Strategic Alliance Mortgage, these rising concerns pushed yields on every tranche of CMBS paper to record highs. As of 10:00 a.m. EST, AAA and BBB- rated CMBS spreads were up 42.6% and 18.7% over Monday's record highs to 1395.75 and 5413.45, respectively.
According to WSJ.com, the catalyst for this week's surge in CMBS yields was a report issued by "analysts at Credit Suisse", that "said two big commercial mortgages that had been packaged into securities in the past year were likely to default. The rapid deterioration of these loans fed worries that the weakening economy and higher unemployment rate would drag down the $800 billion market for CMBS, which so far has withstood the credit crisis with low delinquency rates." WSJ.com also reported that "the overall number of commercial mortgages packaged into securities that are 30 days or more past due rose to 0.64% in October from 0.39% at the end of last year, with most of the increase coming in October. The latest figure, though low by historic standards, marked the highest delinquency rate in two years" according to a Citigroup, Inc. report. "The loans that sent the market down Tuesday were worrisome because they were made at what now looks like was the top of the real estate market and were based on assumptions that the cash generated by the properties would rise," according to WSJ.com's CMBS Market Begins to Show Fissures.
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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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