Commercial/Multifamily Financing Update
Commercial Capital Costs Continue to Drop
Borrowing costs for commercial real estate has come down materially in Q3 and the future looks good! Let’s hope the capital markets continue to stay ahead of any further deterioration of jobs or fundamentals.
The Federal Reserve has cut interest rates by 50 basis points in their first rate cut in over four years! In addition to this reduction, the committee released its "dot plot" indicating an additional 50 basis points cut is expected by the end of the year. All good news for CRE owners. The Fed stated that have "greater confidence" that inflation will return to a normal level and have shifted their focus to the slowing job market. The Committee mentioned the "economic outlook is uncertain, and [they are] attentive to the risks to both sides of [their] dual mandate." Odds of future rate cuts from the FOMC can be tracked on the CME Fedwatch Tool.
The 5 and 10-year treasury markets had already priced most of this move over the last few weeks and months. Spreads have come in materially already this year and seem to be stable. We have locked several deals near or below 5% as of late.
Life Companies – Allocations are looking modest through the end of the year and new money in 2025. Corporate bond spreads (the baseline for life company pricing of alternative investments) are also stable. Spreads range from 140bps to 225bps depending on deal size, profile and leverage. That said, most life companies are priced in the low 5% range today.
Banks – With a drop in short term rates, expect your return on CDs and deposits to start coming down. That normalization of the yield curve will continue to drive better appetite for banks. Deposits are still important but expect banks to continue their recovery toward more activity. Floating rates are coming down, making sizing easier. Fixed rates via swap or portfolio are back in the 5.5-6.0% range.
Debt Funds – Looking for more deals! Most of our clients have wanted to take debt fund money given where SOFR has started. We are pushing hard for negotiated floors on SOFR to take advantage of the coming drops in SOFR. 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.
Agencies – Freddie Mac will hit their cap this year! Fannie Mae still has room this year. Flows have been high and that is pushing spreads and terms to more conservative levels. That said, all in terms are the best they have looked in years.
Fannie Mae's new business volume through August is at $27.7B, compared to $35.3B last year, while Freddie Mac business volume is at $29.2B compared to $28.5B last year. Overall, Agency pricing is around 5.00-5.40%. 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 4.70-5.10%.
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For More Information, Please Contact:
Bill Chiles | Vice Chairman | +1 858 646 4735 | bill.chiles@cbre.com
Scott Peterson | Vice Chairman | +1 858 546 4607 | scott.peterson@cbre.com
Mark McGovern | Institutional Group | +1 858 546 4662 | mark.mcgovern@cbre.com
Brian Cruz | DSF Director | +1 763 512 2923 | brian.cruz@cbre.com
Morgon Fraser | Senior Analyst | +1 858 646 4713 | morgon.fraser@cbre.com
Colby Matzke | Senior Analyst | +1 858 646 4784 | colby.matzke@cbre.com
Entrepreneur /Real Estate
3moNice post. Adds confidence for all stakeholders and helps stir up Multifamily and Commercial transactions. We are looking at Multi Family and NNN properties portfolios