Despite all of the spread widening and volatility for CMBS loans during the past two months, spreads from balance sheet lenders are generally unchanged. Borrowers were opting for CMBS executions earlier this year due to lower all-in rates, but now life companies and banks are offering better pricing again.
Many borrowers are considering 5- and 7-year executions, specifically for acquisitions, to maintain similar cash-on-cash yields that they had underwritten with 10-year financing 60+ days ago. Banks, which tend to not lend beyond 5 or 7 years and are benefiting from relatively wide spreads, and life companies, which are generally not excited about lending longer term at historically low rates, are aggressively bidding these shorter term financings.
It is important to remember that the recent increase in rates is largely due to the Fed moving towards phasing out QE as a result of improving economic conditions.
- An improving economy should lead to lower vacancies and higher rents for office, retail, and industrial properties.
- Hotels should see increasing RevPar as a result of more leisure and business traveling. An improving economy should also strengthen the group meeting market.
- Increased residential mortgage rates will likely result in longer term renters which will lead to lower vacancy and higher rents for multifamily properties.
WSJ reported that Libor is being sold to NYSE Euronext, the U.S. company that runs the New York Stock Exchange. At least initially, NYSE is expected to continue the current process for calculating Libor. NYSE plans to work with market participants and regulators to “evolve how Libor is calculated” to bring it in line with recommendations last year from another U.K. commission.