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.
Multifamily Property Values Fall as Insurance Premiums Climb
Rising insurance costs have caused a 3.6% decrease in multifamily property values nationwide since Q4 2019, with the South-Central region and Florida recording the biggest drops of 7.8% and 6.8%, respectively. Houston (-11.1%) and Jacksonville (-9.6%) were the most affected markets in each region, while Oklahoma City (-3.8%) and West Palm Beach (-5.0%) were the least affected.
Effect on values from change in insurance expenses since Q4 2019 by region
Although South Florida multifamily owners have seen some of the most substantial increases in insurance premiums, their effect on value has been less than one might expect given the region’s increased frequency of hurricanes over the past few years. Resilient renter demand, along with unprecedented rent growth in 2021 and 2022, has offset some of the negative impact that rising costs have on a property’s net operating income (NOI). Likewise in California, a surge in insurance costs in 2020 due to wildfires and other environmental factors has not significantly affected multifamily property values due to higher rents.
Growth in insurance costs is beginning to moderate nationwide, even in Florida where premiums have more than doubled over the past two years. Q2 2024 marked the first quarter of lower insurance cost growth across all regions since mid-2022.
Year-over-year change in insurance expenses by region
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: The Fed is expected to keep the federal funds rate at 5.25-5.50% during the July 31st meeting. Forecasts are pointing to two or three interest rate cuts in Q4 this year. CBRE's house view is that?inflation and economic growth will slow enough to justify two cuts beginning in September.?Currently, futures markets are showing a 100% chance of a rate cut?at the September. Odds off a rate cut from the FOMC can be tracked on the?CME Fedwatch Tool.?Looking toward later in the week, the most important economic releases will be jobless claims and GDP on Thursday and Friday’s core PCE inflation report. Each of these reports will inform market sentiment heading into next week’s FOMC meeting.
With President Biden's exit from the US Presidential race this week, markets did not experience the volatility like they did during the aftermath of the debate last month. This was likely due to the change from Joe Biden to Kamala Harris resulting in a?slight uptick in odds to beat?Donald Trump in the upcoming election.?Treasuries have come back in near June lows levels. With the volatility of treasuries, our clients continue to utilize buy-downs with lenders to reduce rates further.?
Life Companies?have been quoting rates between 5.50% to 6.10%?for 65% leverage or less. Rates vary widely due to the large range in rate floors being applied. 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 6.05-6.50% 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. CMBS spreads have come in over the last few weeks.?We have?seen?rates?around 6.20-7.20%?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:?Fannie Mae business volume through May is at $15.5B compared to $19.3B last year, while Freddie Mac business volume?is at $16.9B compared to $13.9B last year. Combined, the Agencies are up 10% year-over-year. 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?5.35-5.95%. 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 4.95-5.75%. Our team is here to help you navigate financing options and provide color on what we are seeing in today's market.
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Historical Cap Pricing
The chart below illustrates how cap pricing has changed over the past 2 years.?
Podcast:? "The Weekly Take"
The Points Guy on maximizing brand loyalty programs
Over 12 million people a month check The Points Guy (TPG) for tips on making the most of their travel experiences. Brian Kelly, TPG himself, teams up with CBRE’s Hotel Research lead Rachael Rothman to explore the latest trends in loyalty programs, what hotel brands can learn from airlines and credit cards, and how you can get into that airport lounge.
Today's Rate Snapshot
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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]
Creation of Homes Builds Value
7 个月How fast do you think lower intrest rate will effect the prices of assets, if at all?