CRE FINANCE OUTLOOK CONTINUES TO BRIGHTEN

 

 

Last month we reported that the CRE financing market was looking up. This month we note that the trend continues.

In a prepared statement April 28 following last month’s FOMC meeting the Fed announced that …

“ Amid progress on vaccinations and strong policy support, indicators of economic activity and employment have strengthened. …  Inflation has risen, largely reflecting transitory factors. Overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit (and cash) to U.S. households and businesses.” (Emphasis by Counsel Mortgage)

 

The Fed goes on …

“The Committee seeks to achieve maximum employment and inflation at the rate of 2% over the longer run. With inflation running persistently below this longer-run goal, the Committee will aim to achieve inflation moderately above 2% for some time so that inflation averages 2% over time and longer‑term inflation expectations remain well anchored at 2%. The Committee expects to maintain an accommodative stance of monetary policy until these outcomes are achieved. The Committee decided to keep the target range for the federal funds rate at 0 to 1/4% and expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment and inflation has risen to 2% and is on track to moderately exceed 2% for some time.”

 

While the “longer run” and “moderately above” have escaped definition by the Fed, they have announced they expect to keep Fed Funds at the 0 – 1/4% range through the end of 2022. (Post-mid-term elections we note.)  Whether they can hold to this with M1 & M2 levels digesting continuous monetary injections and commodity prices blowing up as they have the past 6 months remains to be seen.

 

Delinquency rates for mortgages backed by commercial and multifamily properties decreased for the 3rd consecutive month in March, reaching the lowest level since the pandemic began, according to the Mortgage Bankers Association’s (MBA) latest monthly CREF Loan Performance Survey.

 

Loans backed by lodging and retail properties continue to see the greatest stress, especially lodging. However, delinquencies in both property types improved during March.

 

“There continues to be significant differences in loan performance by property type,” said Jamie Woodwell, MBA’s VP of commercial real estate research. The same applies for lender type, with CMBS—which has a high concentration of retail and hotel loans—experiencing a higher delinquency rate than other lending classes. For March, 8.7% of CMBS loans were delinquent, down from 9.3% in February. In comparison, the March delinquency rate for GSE loans was 1.2%. MBA said 1.6% of life company loan balances were non-current, down from 2.0%.

 

So, lenders have money and are actively looking for projects to fund. Rates have bubbled a little reflecting bond market activity, but generally not to deal-breaking levels. This may change rapidly, given the propensity of the Government to launch trillion-dollar giveaways.

 

When/If considering a loan, opt for a fixed rate if one is offered. Expect the rate to be as much as ½ % higher than a variable rate. The fixed rate/variable rate spread will vary depending on the term of the loan (and other terms). Fixed rate offerings are still out there, but you might have to look around.  But it’s not quite a hard as unicorn hunting … yet.

 

This from one of our SBA 504 friends: (as of 4-18-21)

25 Year Purchase Rate – 3.073%

25 Year Refinance Rate – 3.114%

20 Year Purchase Rate – 3.016%

20 Year Refinance Rate – 3.058%

10-Year Purchase Rate for March & April – 2.684%

Readers of our BLOG for the past several months will notice that the above rates have “bubbled” a bit since Q4-20 or the first of this year.

We work for you, not for the lender.

Today’s post is written by Michael Green, Commercial Loan Originator for Counsel Mortgage Group, LLC.

Counsel Mortgage Group®, LLC
www.counselmortgage.com
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