- The revised estimate of first quarter U.S. GDP contracted at a 1.0% annual rate, far worse than the initial estimate of a 0.1% increase. The brutal winter and an inventory correction are thought to be responsible, but that was already priced into expectations. The data suggest that the current quarter will more than make up for the first quarter’s contraction. If the economy sustains its current healthy growth, it will be very positive for the commercial real estate industry nationally.
- Deal flow seems to have been marginally slower during the last few weeks. Life Co.’s and banks are generally steady or positive with last year’s pace, while the CMBS market has fallen off pace with issuance down to $30B YTD from over $40B at the same time last year. REIT issuance of unsecured debt continues to set all time highs for volume and all time lows for rates, so look for the REITs to continue to be active players.
- Treasuries have continued to rally the past month driving down borrowing costs. After starting the year at 3%, the 10-year UST was in the 2.40%s last week to the surprise and confusion of most. The treasury movement on top of spreads continuing to slowly narrow have brought borrowing costs to their lowest point in more than a year. Low interest rates along with a positive economic outlook are driving lenders to seek more yield and consider higher yielding opportunities such as construction loans. With multifamily and condo construction loans already efficiently priced and leverage creeping up, office construction, including spec office construction, is becoming more prevalent in some markets. At low LTCs (~50%), non-recourse construction loans are now available from banks in the L+400’s, and at 70% are available from debt funds and REITs at 7%-8%+. Cheaper recourse bank and life co. loans are also available.
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