NEWS

Capital Markets Update

April 2024

As the market patiently awaits the Fed to begin reducing shorter-term rates, curveballs keep being thrown, creating a somewhat schizophrenic bond market with less predictability. While the consensus remains that Fed cuts will happen this year, the effect on the overall yield curve across long term bond yields (3-10+ years) is less certain.

Certainty of execution can be provided by life insurance companies who remain active and dependable sources of capital. Several of our life insurance lenders funded record volumes last year and remain eager for more business. Here is a program overview: 

Smaller Balance Life Company Program Highlight

  • Loan sizes of $2 to $10 million.

  • Lenders are seeing strong volume as banks continue to limit lending activity.

  • Current spreads ranging from 160 to 225bps (5.96 to 6.61%)

  • Fixed loan terms from 3 to 15 years.

  • Able to lend in major and tertiary markets.

  • No loan covenants for debt service or deposits.

Large Balance Life Company Program Highlight

  • Loan sizes of $10+ million.

  • All asset types with emphasis on industrial, multifamily, and high-quality retail.

  • Loan terms from 3 to 15 years / 25-to-30-year amortizations.

  • Non-recourse.

  • Current spreads ranging from 110 to 160bps (5.46 to 5.96%)

MARCH 2024

We attended the annual MBA CREF Conference earlier this month. Attendance was strong from regional to national lenders. Some key takeaways:

  •  MMCG met with 20+ lenders of ranging capital sources, including our correspondent Life Companies. Lender attendance was down but key players were in attendance.

  •  Transaction volumes for most lenders were down in 2023 due to lack of sale transactions, limited construction starts, and general borrower incredulity of current rates.

  •  Most lenders anticipate rates will remain "higher for longer."

  •  Life Company lending allocations in 2024 remain high. With less sale transactions, spreads are projected to tighten as competition for quality deals increases. Life companies continue to be a stable source of capital.

  •  Agencies came up short of their 2023 allocation goals. 2024 remains mission driven with a heavy focus on affordable deals.

  •  Bank lending will remain constrained in 2024 as they continue with credit and liquidity issues and focus on portfolio management. Bank lending will continue to be reserved for existing customers and strong depository relationships. Banks will continue to seek further deposits in 2024.

  •  National lenders remain inquisitive of downtown Portland's comeback.

JANUARY 2024

Interest Rates

  • Interest rates are broadly believed to have peaked.

  • The market anticipates shorter-term rates will begin trending downward later in the year based on Fed’s guidance.

  • Longer term treasury yields are anticipated to trade within a narrow range as the yield curve normalizes. The consensus forecast for 10-year yields is 3.80% for the end of 2024.

  • Lending spreads are anticipated to tighten during the year reflective of reduced market risk and increasing liquidity.  

Capital Allocations

  • Life companies begin the year with fresh allocations and plenty of capital to put to work. They will continue to offer reliable certainty of execution.

  • Bank and credit union lending will remain constrained with appetites slowly increasing as shorter-term rates come in. Both will continue to look for ongoing depository relationships with new transactions.

  • For multifamily, agency lenders will remain active and have a continued focus on mission driven business (ie affordable) for best pricing.

Sales and Property Valuations

  • Rate stabilization will lead to clarity and confidence in cap rates and property valuations.

  • Limited construction starts will continue to constrain supply.

  • Clarity on property valuations should lead to an increase in sales activity.

MARCH 2023

The commercial/investment real estate capital markets have experienced high levels of change and volatility over the past few days. Here are some important points to keep in mind as you navigate the debt markets in the current environment:

  •  The bond market has reacted to the volatility with the 2-year treasury down 100 bps+ since last week and the 10-year treasury is down 50 bps. 

  • The Yield curve between 5 and 10 years has leveled which may be a signal that the bond market believes the Fed will pause or rethink the continuance of its aggressive increase plan.

  •  Lender risk spreads have widened post Silicon Valley Bank, however, not to the extent of bond yields decreasing. Overall coupon interest rates are lower today than last week.

  • Each lender's source of funds can dictate significant influence on availability, loan terms, and dependability. Liquidity in the banking market has been in question the past several days. While the FDIC's aggressive backstopping of deposit losses sets a precedent and provides some confidence in the banking system, the dust hasn't quite settled.

  •  Life companies continue to be a stable and dependable source of real estate capital. Life companies source of funds are premiums from life policies and investable equity rather than bank deposits. They match funds against longer-term liabilities and continue to have consistent allocations and tremendous appetite for new loans. 

It remains as important as ever for borrowers to carefully evaluate all sources and alternatives for their financing needs.Take away: life companies are very well positioned over other sources of capital for the remainder of the year. This is the case for fixed-rate term debt as well as construction/perm for development projects. MMCG has strong relationships with life companies established over decades and can help provide access to this capital. 

FALL 2022

With mid-term elections behind us and as we approach year-end, the Commercial Real Estate Capital Markets are experiencing the full effects of domestic and global central banking policy. Here are a few market themes: 

  • Interest rate indices continue to be volatile with material fluctuations almost daily. The Treasury yield curve remains inverted with long-term interest rates below short-term interest rates. The gap between the 1-year and 10-year yields is nearly a full 1%.

  • With the rapid rise in shorter-term interest rates, yield maintenance prepayment penalties are now much lower than they were just a short time ago. Often the prepayment penalty is reduced to the minimum 1% of the loan balance. This creates an opportunity to refinance and reset the rate ahead of maturity and ahead of predicted Federal Reserve interest rate hikes.

  • Lenders are responding to the economic uncertainty and exercising caution through a combination of stricter underwriting and a reduction in the time they are willing to hold both quoted and locked rates.

  • The rise in interest rates has a direct effect on loan sizing; the underwriting focus has shifted from valuation to debt service coverage.

  • The recent volatility and consolidation have driven a number of regional banks to the sidelines. Life companies continue to remain active and will have fresh allocations in the new year.

  • As much as ever, the current capital market environment calls for a broad evaluation of a variety of sources, durations, and structures of debt to find the best solution.

We are available to assist with setting and executing strategies for portfolio interest rate risk management.

SPRING 2022

MMCG was well represented at the annual Mortgage Bankers Conference (MBA) in San Diego. We had a full calendar of in-person lender meetings, including some new relationships.

Here are some positive takeaways:

  • 90+% of our lenders were in attendance this year

  • 2022 allocations are up 10% overall, returning interest in office & retail

  • Lenders are broadening debt offerings to meet a range of needs: short & long term, flex prepay, bridge, forward rate locks

  • Lenders enjoy healthy portfolios and record levels of production in 2021

  • Hospitality capacity returning and should get stronger with the end of mask mandates

  • Numerous lenders resuming travel & eager to visit Portland and the region after a few years away

  • David Schaffer made the top 10 production list for Symetra; John Petersen participated on Aegon Life Advisory Board

  • Best life company spread pricing: 130 over-index

  • Best early rate lock forward: 1 year at 18 bps pricing premium

  • Bottom line: lenders like our Region and will compete to grow their loan portfolios here

Current lender intel:

  • Life company rates range from high 3’s to low 4’s for 10 year fixed; attractive longer-term rates also

  • Bridge capital for multifamily is plentiful. Rates in high 3’s to mid 4’s with structure. Low 6’s to mid 6’s for high leverage, minimal structure. 3-year term+ extensions; interest only

  • Select banks are offering attractive terms on a shorter basis

  • Agency (Fannie, Freddie, HUD) spreads have widened somewhat but remain constant in the market for multifamily

  • Competition for apartments continues between agencies, life co’s, and banks; the winner is typically chosen due to favorable structure rather than rate

  • We have recently locked attractive rates and terms for commercial properties

MMCG enjoyed a very strong year in 2021 and 2022 has started with record transaction volume.

We appreciate all of our industry friends & clients, who make our Region attractive to lenders and a great place to do business.


June 2021

What a difference 6 months can make!  As Vaccinations catch up with demand and the rollout takes effect, the economy is set to benefit through the second half of the year from reopening demands, a boost to spending from accumulated savings, and continued fiscal stimulus.  2021 is looking to be a year of two halves with the ingredients in place for a strong recovery.

Commercial Real Estate is making up for lost time and has entered a new cycle.  Divergent performance across each property type has created almost a full cycle worth of opportunities.  Tenant demand has turned a corner improving performance across most sectors.  Many industries in the real estate ecosphere are struggling with material supply and labor constraints that will take time to recover.  Cap rates continue to face downward pressure across most sectors driven by increased market activity, future rent growth, and abundant inexpensive capital sources seeking opportunities.  Multifamily and industrial properties continue to be strong performers and ongoing preferred lender property types.  Parts of the retail and office markets are facing structural headwinds however limited new supply will work to provide support for both occupancy and rents. Daily consumption retail continues to perform well and hospitality will be an interesting sector to watch with the world on the move again.

For now, the Federal Reserve remains committed to supportive monetary policy and the near-term prospect of low-interest rates remaining in place..  The Fed’s economic stimulus looks to be searching for patient equilibrium - not too much to spark unintended inflation while not too little to stall the recovery.  Extensive policy support is set to remain in place until some sort of future normality is established, boosting real estate values by increasing the predictability of cash flows and by keeping low-interest rates in place, reducing required returns.

The 10-year Treasury yields have widened from last summer sub 1% lows but remain inside the early 2020 pre-covid 2% range and off the interim highs.  The 10-year yields have remained range-bound near 1.50% over the past three months, resulting in 10-year commercial mortgage rates in the 3% to 3.75% range,  varying based on leverage, property type, tenant mix, etc.   With improving economic conditions, strengthening labor market, and inflation concerns (whether persistent or transitory) return to sub 1% yields look greatly diminished. Every lender we work with has returned to the market and many have increased allocations to deploy. Forward rate locks (up to 12 months) and extended loan terms represent strong relative value.  Favorable cost of capital, positive leverage, and long-term fixed rates continue to be an opportunity - take advantage while available!


December 2020

Like many of you, we look forward to having nothing left of 2020 but memories and stories for our grandkids.

Winter solstice passed on December 21st means our days have begun to lengthen; new growth & welcome weather will surely follow a few months of challenging weather.  Widespread vaccination has begun and will head off the current surge over the same time frame.  Many Covid challenges remain but we are beginning to see how and when this will abate.

The commercial real estate capital markets have adjusted; activity has reduced but deals are getting done.  We have stayed busy with client needs and closing new financings with a variety of lenders and property types.  All the lenders we work with have managed to adjust to Covid impacts and look forward to more normal activity levels in the coming year.  Most of our life lenders expect to compete next year to get out their allocations.  Appraisal discipline has been challenged by limited market info, but values have held up for the most part and are expected to return/improve with the recovery.

Treasury rates have started to anticipate recovery, but funding rates remain near all-time lows, in the 2’s and 3’s. Best relative value includes forward interest rate locks for 8 months or longer, and long loan terms of 20-25 years. The nearly 40 Year Bond Bull is almost certainly past, and loans done in 2021 will mark to market favorably against future rates.

There have been lots of Pandemic shift, with much commentary about what comes next:

·         How & where we work:  WFH, co-working, creative office, density, virtual calls…

·         How & where we live:  density, multi/SFR, urban ex-migration, Zoom-towns, Sunbelt from Gateway cities, rent/own, co-housing, senior housing, student housing…

·         Retail evolution:  E-commerce, Ghost Kitchens, Food Halls, take out, logistics/fulfillment…

·         The shape of future development:  density, access, indoor/outdoor, live/work & work/live, transit…

·         Adaptive re-use:  malls, office buildings, hotels

Future patterns will likely settle somewhere in between the past & the present, in varying mixes of risk avoidance and preference; but it is clear in many respects that Covid has served as a catalyst accelerating change that would have occurred in any event.  With increased mobility and portability, and flattening demographics, markets will need to compete for what businesses and employees prioritize.

The Fed has taken on the challenge of reassuring the markets, and there is wide anticipation of healthy recovery for Q3 & Q4 next year. All the world’s central bankers are pulling together.  Congress’s late-inning relief/stimulus refresh Bill will be helpful for many and help support a wide range of commercial real estate asset classes.  We anticipate seeing momentum from Q4 2020 continue and accelerate in Q1 2021.  Transactional activity will pick up, with increasing opportunities, and strong positive leverage makes good deals even better. We stand ready to assist.

Most of us in our industry are fortunate in how this is affecting us, but all of us have close contacts for whom this is more challenging; remember them with your generosity where you see the need.

Wishing the best for you, your families, and all of our industry friends, and for 2021 to rise up to meet you.



AUGUST 2020

As we finish our “Covid summer”, we continue actively quoting and closing loans at historically low-interest rates.  As the marketplace evolves, we wanted to share some noteworthy themes we believe will continue the balance of the year and into 2021. 

Lenders remain focused on essential use properties with multifamily, industrial, grocery-anchored centers, and drug stores getting the most lender support. Competition for the low risk (low LTV) loans remains very high with many lenders wanting to play in this space. This has created a fairly heated borrower’s market for these types of deals. Additionally, the Federal Reserve this week recommitted to providing all necessary support to maintain liquidity and record-low borrowing costs.  If you have a lower leverage loan, now is a particularly good time to borrow.  

Lender loan demand remains heavily dependent on the performance of their existing loan portfolios. Bank lenders have been the largest mixed bag with numerous local institutions stepping out of the market in April. While some have since returned, many remain on the sidelines or lending only to select existing relationships. Life companies remain actively funding new loans and continue to be the lender of choice for the certainty of execution and long-term fixed rates. CMBS lenders and debt funds continue to remain inactive due to their leverage funding structure (debt funds) and dependence on securitization (CMBS). Lastly, as a unique local challenge, Oregon legislature passed House Bill 4204 in June which includes mortgage payment deferrals. The deferral period ends in September, however if the legislature extends the bill in its current form it could result in reduced market liquidity.

The time required to get transactions over the finish line has extended and will likely continue as lenders work through extra vetting to understand how each tenant has been affected, how tenant collections are going, etc. Lenders are also spending extra time internally vetting requests throughout the credit approval chain.  For underwriting, we have seen reduced loan to values and, in some cases, payment reserves for known events (pending lease extension, tenant occupancy, etc.) or to simply mitigate payment forbearance.  For multifamily, the agencies (Fannie/Freddie) are doing payment and tax reserves dependent on where the loan fits in their the defined LTV Tiers. Reserves are required on higher leverage loans.

We are available to help brainstorm challenges and opportunities; lets us know how we can help put our lenders to work for you.

May 2020

We have completed our second full month Post-Covid with all its new realities and terminology…social distancing, shelter at home, essential business, webcast offerings, small business relief, etc.

Every market and property has displayed uniquely nuanced differences, but all the fundamental ground level business changes are having a ripple effect for tenants, owners and lenders.  Some property classes have fared relatively better than others, with housing enjoying over 90% collections and hospitality most impacted.  June will bring a new test for the entire ecosystem.

Landlords have evaluated and experienced rent concessions requests (rent reductions, deferrals, blend and extend) while lenders have evaluated mortgage relief (interest only, deferral, blend and extend); focus on portfolio administration at every level, and reasonable accommodations reported for this no fault external challenge. 

On the lender front, we continued to process and close loans started in the early Covid environment, preserving favorable pricing/sizing.  We are currently in the market with post-Covid loan requests and experiencing a cross segment of our lenders remaining active with the rest intent on resuming lending as something closer to normalcy returns.  Agency lending (due to substantial Fed bond support) and Life Company lending (due to their deep real estate experience and portfolio strengths) have been the least impacted. Numerous national and regional banks have stepped away from the market and we anticipate their appetites will be minimal for the next quarter.

Our active lenders are reasonably conservative managing risk for new business. Leverage is somewhat reduced, and aggressive cash out or interest-only structure is harder to achieve. Life companies and other lenders continue to quote new business albeit at more conservative levels (i.e. 65% LTV and 9% debt yield). Pricing ranges from low/mid 3’s to mid 4’s depending on specifics, still close to historical best levels.  

Attention is shifting to reopening in most markets with more learning curve ahead for how to do so safely, in terms of what that means for all of us and those with whom we do business: density, spacing, face masks, hand washing, elevator limits, etc. We expect to find our way back to a new normal where this becomes natural. There is much conjecture as to longer term implications, trends and differing impacts on various markets and uses. There will be opportunities for those who anticipate most accurately.

We are available to help brainstorm challenges and opportunities; lets us know how we can help put our lenders to work for you. Best to all of you and yours through this journey.