The Real Estate Capital Institute in Chicago reports the summer season ended with Treasury yields declining, but returning to levels of the previous month.
"Yet, more lenders returned to the market and the Agencies marched forward by offering even lower spreads by 20 basis points or more," says RECI Executive Director Jeanne Peck.
Borrowers with high-quality, institutional projects are the winners within today's debt markets, she says.
However, a substantial disconnect exists for older projects in secondary markets as borrowers must accept higher pricing, less leverage and recourse.
Observations for the month include:
Capitalization rates sliding downward in tandem with lower mortgage rates and increased availability of leverage - up to 75% for many institutional-grade office, retail, industrial and apartment properties.
Overall capitalization rates for multi-tenant, commercial properties (e.g., office and industrial), are about 50 to 150 basis points lower than the beginning of the year - starting as low as 7.5%. On the other hand, credit-tenant commercial properties with longer-term leases can trade below 7%.
Multifamily cap rates often are bid down below 7% for core-plus assets and can dip well below 6% for prime-quality properties in major markets.
Investors bid up sub-performing properties and economic recovery looms on the horizon - particularly true for lodging properties.
As has been the case for most of this quarter, rates are at their lowest levels since the 1960s.
More banks and life companies re-enter funding landscape as balance sheets are being cleaned up. Expect greater bidding on the "right" quality assets.
As seen from the select bank-note purchase activity, distressed real estate on a stand-alone basis or as part of an overall bank portfolio is transacting at about 30% of the unpaid balances. Distressed real estate in marginal locations in great need of completion is trading at even lower percentages.
According to Jim Postweiler Advisory Board Member of the Real Estate Capital Institute and a Managing Director in the Jones Lang LaSalle Capital Markets group, "The capital markets have started a strong recovery and are active once again.
"We need leasing fundamentals to follow suit in order to sustain the current positive trend."
Postweiler adds, "Funding sources are still selective, but will provide very attractive terms if conservative leverage is sought."