Commercial real estate debt continues to be lent at historically low rates and from a multitude of sources:
- CMBS lenders continue to be very active (CMBS 3.0) mostly with quality sponsors at reasonable leverage on A/B properties.Rates are in the 4.0%-4.5% range with 70%-75% LTV.This activity should continue as yield hungry investors buy these bonds.
- Insurance companies and other large portfolio lenders are extremely active for quality sponsors, such as REIT’s or pension fund advisors, and for core properties.These loans are non-recourse, and feature 5, 7 or 10-year terms with interest rates hovering between 3.5%-5.0% (depending on the length of the loan term and LTV), amortization schedules of 25-30 years, and loan-to-values of around 50%-65%.Some interest-only periods are available.
- Local and regional banks continue to offer 5- and 7-year loans to private investors who are willing to take some amount of recourse on their loans.LTV is in the 60%-80% and rates are 4.0%-5.0%.Amortization periods are generally 25-30 year periods.This is a good option for smaller asset transactions or borrowers who want flexibility of prepayment.
There is a lot of activity right now on the REIT and institutional side. They are seeking core A quality assets, typically with some sort of grocery component and urban retail. Non-traded REIT’s such as Cole Capital and Inland continue to be among the most active buyers of power centers and single-tenant properties as these firms are raising millions of dollars per day in new equity. Private buyers are still active for B and C quality properties, but want 8%-10% cap rates and with leverage are looking for high-teen IRR’s.
Cap rates have continued to decline for the truly core A quality product. They can be delineated as follows:
- A-class urban and grocery-anchored assets in major MSA’s – 4.0%-6.0%
- A-class power centers in major MSA’s – 6.0%-8.0%
- A-class assets in secondary markets – 7.0%-9.0%
- B-class assets in major MSA’s – 8%-10%
- B-class assets in secondary or tertiary markets – 10%-12%
- C-class assets in any market – 12%-15%
Joe Girardi | Senior Vice President
Mid-America Real Estate Corporation
One Parkview Plaza, 9th Floor | Oakbrook Terrace, IL 60181
Direct: 630.954.7392 | Fax: 630.954.7304
firstname.lastname@example.org | www.midamericagrp.com