Commercial/Multifamily Financing Update

We have highlighted several resources and publications below, designed to offer insights into the constantly evolving market and their impact on the real estate sector.

• Midyear Global Real Estate Market Outlook 2024:?CBRE Research experts provide insights on what’s in store for the global economy, capital and debt markets, office, industrial, retail, multifamily, hotels and data centers for the rest of 2024 and beyond.?Read More
• Why the local banks most exposed to CRE aren’t worried:?The boom in remote work left some building owners unable to cover their loans, which would seem to be bad news for banks with high concentrations of commercial real estate loans. But two area institutions say that's not the case for them.??Read More
• Overbuilding in Multifamily Today Means a Lack of New Units Tomorrow:?A July report from Yardi Matrix, found that new unit deliveries of multifamily apartments nationwide will drop from 560,000 units in 2024 to 350,000 in 2026, and fall even further to 328,000 in 2027.??Read More
• Despite Positive Absorption, New Deliveries Cause Jump in Life Sciences Vacancy Rate: Net absorption totaling 294,390 sq. ft. in Q2 was offset by 4.6 million sq. ft. of vacant new deliveries, spiking the lab/R&D vacancy rate by nearly two percentage points quarter-over-quarter to 16.7%.?Read More
• The True Cost of Multifamily Property Insurance:?A recent CBRE article explained that rising insurance costs don’t just impact the bottom line of CRE ownership. It can also lead to a decrease in overall property values. Specifically, “rising insurance costs have caused a 3.6% decrease in multifamily property values nationwide since Q4 2019,” the article noted.?Read More

H1 2024 U.S. Cap Rate Survey

CBRE's H1 2024 Cap Rate Survey provides key insights into real estate capital markets, with data informed by deals that took place in the first five months of 2024. The survey shows that cap rates have generally remained steady but have reacted differently depending on property type. Most respondents believe that cap rates have now peaked, but they don’t expect a sales volume recovery until 2025. Key Takeaways:

• Most survey respondents predicted no change in cap rates in the next six months.
• Persistent inflation and interest rates have delayed a recovery in sales volume until 2025.
• Different property types reacted differently to market changes with average industrial cap rates falling in H1 2024 and office yields continuing to climb.
• Class A office cap rates exceeded 8% and less competitive Class C spaces were in the low teens.

Explore the Report

Debt Market Sentiment

With CBRE's nationwide?proprietary data sharing system we are able to keep?a pulse on the everchanging debt market.

Fed Watch: Friday's job report showed 114,000 net new non-farm payroll additions, well below expectations of +175,000, and a rise in unemployment to 4.3%. The market reception caused an overreaction as investors feared softening in the labor market indicated a "hard landing" scenario. As a result, economists such as Wharton's Jeremy Siegel were calling for a 75bps emergency rate cut.?“The fed funds rate right now should be somewhere between 3.5% and 4%,” Wharton’s Jeremy Siegel said. Treasuries initially rallied extensively, with the 10-year yield briefly hitting 3.67% before the stronger than expected ISM data caused a retrace of much of the rally. On Tuesday, risk assets bounced back as many institutions viewed Treasuries as overbought and that the reaction to one bad data point might not have warranted such an outsized reaction.?

The Fed is expected to cut the?federal funds rate by 25-50bps during the September meeting.?Currently, futures markets are showing 100% chance of at least a 25bps cut and a?72% chance of a 50bps rate cut?in September. Odds off a rate cut from the FOMC can be tracked on the?CME Fedwatch Tool.?

Life Companies?have been quoting rates between 5.30% to 5.90%?for 65% leverage or less. However, with the volatility in treasuries, rates vary widely due to the large range in rate floors being applied. Groups that traditionally update their rates/floors once a week, have held off on adjusting until there is some stability in the market.?Life Company?spreads are around 150-225bps for most deals. Most are still 60% or less for best pricing. Some Life companies are still pushing debt yields and in-place coverages below 1.20x for value-add deals toward a higher stabilized DSCR, however most are sizing to an actual 1.25x DSCR in-place for core and core-plus deals. We are currently closing?three Life Company?loans on multifamily properties where they beat the Agencies.?

Banks continue to be more conservative when evaluating deals. Stress testing, Fed Audits and proactive asset management is taking up majority of their time. That said, we are seeing?quotes in the 5.85-6.30% range?for deals with steady collections and a strong tenant mix. Banks on their fixed rate programs for core deals are 3, 5, and 7-year fixed rates with a step-down prepay. Floating rate options are around 275-350bps + SOFR. There continues to be a flight to quality and most lenders have reduced their target LTV’s by 5% to 10%. Deposits and existing relationships are meaningful to attract better interest.

Debt Funds?are looking to be more active. Leverage?is around 60-70% loan-to-cost with primary focus on stabilized debt yield and in-place cash flow or lease up deals for multifamily or industrial product types. You can expect to see spreads range between?265-425?bps?over?SOFR. On the multifamily side, many groups are actively pursuing preferred equity positions behind agency senior loans.?

CMBS?prefer 10-year terms as 7- and 5-year terms are more difficult to price. The question remains around spreads: while it generally takes longer for the CMBS market and some of its participants to react, CMBS spread moves have been relatively contained over the past few days, on both new issue and secondary sides.?We have?seen?rates?around 6.30-7.30% depending on lean size, quality, property type and debt yield. Loan terms are anywhere from 5- to 10-years, fixed rate, up to 75% LTV and often full term IO.?

Agencies:?CBRE locked $1B in the last week. Freddie Mac locked $3B as a firm and Fannie Mae locked $1.1B since August 1st. CBRE was half of that volume! While many lenders will not lock in periods of volatility like this (LifeCos and CMBS), the agencies can lock quickly and are a vital source of liquidity in times of volatility. The average note rate for the agencies was inside 5.5%, including three locks last week sub 5%!?

Amortization loans are still available up to 70% LTV with mission, no cash out and 65% with cash out. Deals with significant mission are warranting competitive pricing in the mid-100s spread.

Overall, Agency pricing is around?5.30-5.70%. Rate buydowns are becoming a more effective alternative for borrowers given the current environment driven by volatile benchmarks. With a buydown, rates can drop to as low as 4.95-5.40%.

Our team is here to help you navigate financing options and provide color on what we are seeing in today's market.

Historical Cap Pricing

The chart below illustrates how cap pricing has changed over the past 2 years.?

Podcast:? "The Weekly Take"

What’s next for commercial real estate? Our experts weigh in

CBRE Global Chief Economist Richard Barkham and Cycle Monitor’s Glenn Mueller share insights on what to expect across real estate sectors in the second half of 2024.

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Today's Rate Snapshot

PER PENSFORD

USD LIBOR and SOFR Forward Curves

Indicative Rate Cap Pricing for Agency ARMs

View the Newsletter of J.P. Conklin, President? Founder of Pensford

For More Information, Please Contact:

Bill Chiles | Vice Chairman | +1 858 646 4735 | [email protected]

Scott Peterson | Vice Chairman | +1 858 546 4607 | [email protected]

Mark McGovern | Institutional Group | +1 858 546 4662 | [email protected]

Brian Cruz | DSF Director | +1 763 512 2923 | [email protected]

Morgon Fraser | Senior Analyst | +1 858 646 4713 | [email protected]

Colby Matzke | Senior Analyst | +1 858 646 4784 | [email protected]