The annual Commercial Real Estate Finance Convention of the Mortgage Bankers Association was held last month in San Diego. The conference involved two and half days of meetings between our life insurance company mortgage investors and their mortgage banking loan correspondents. Here are some takeaways from that conference:
- Life insurance companies are indicating the same or slightly larger allocations to loans on commercial real estate than last year. Banks and credit unions are expected to continue lending for 3, 5, and 7 year terms with life insurance companies dominating lending for 10 years to as long as 30 year fixed rate terms and long term self-amortizing mortgages. There is an abundance of non-recourse bridge financing available for unstabilized properties which can later be converted to long-term fixed rate financing when the property is stabilized as well as mezzanine debt for borrowers needing higher loan proceeds. Lenders have broadened their lending scope and will often accommodate such things as prepayment flexibility, a wide range of property types, TIC borrowers, and interest only payments where the loan amount is conservative.
- Rising interest rates, predicted 2-3 years ago are finally happening. The Federal Reserve is expected to increase the Fed Funds rate 2-3 times this year. The yield curve is fairly flat with the difference between the yield on the 5 and 10 year Treasury only about 20 bps. With the specter of future inflation on the horizon, cap rates should be expected to go up if rents increase and valuations remain stable. (Please see charts below with thanks to Jamie Woodwell, Vice President of Commercial/Multifamily Research, Mortgage Bankers Association.)
- With the yield on the 10 year Treasury rising and on its way to 3.00% (2.90% as of this date) some life insurance companies are reducing spreads to keep the interest rate on mortgages in the low 4% range. Life insurance companies lending on a wider array of properties are quoting rates in the mid to upper 4% range. Banks and credit unions are quoting rates ranging from the mid-4% to mid-6% range depending on loan term and borrower financial strength.
- Finally, the massive supply of 10 year CMBS loans maturing in 2017 and has been refinanced, much of it with bank and life insurance company lenders. 2018 is expected to be a down year for CMBS lenders.
And on a more personal note, given the tragedy of the Thomas Fire and Mudslide and heroic efforts of the First Responders, with every loan funded during 2018, the Santa Barbara office of The Alison Company will make a donation to organizations benefitting First Responders. Thank you for joining us in this.
The Alison Company exists to serve its investors and borrower clients and welcomes any inquiries or requests for information. Please visit our website at www.alisonmortgage.com
Douglas Scott – Principal
The Alison Company
1215 De La Vina, Suite H, Santa Barbara, CA 93101
Office: 805-845-5200 Mobile: 805-637-3665
Kevin Corstorphine – Senior Loan Officer
The Alison Company
1215 De La Vina, Suite H Santa Barbara, CA 93101
Office: 805-845-5200 Mobile: 925-487-4357
Global Yields Have Started to Increase
Source: Thomson Reuters
Wages are Growing Slowly
Source: Federal Reserve Bank of Atlanta
10 Year Treasury Yield and Dow Jones Industrials Index
Summary of the MBA Outlook
Source: MBA Forecast – January 2018