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Fed Increases Rate 25 Basis Points

March 16, 2017 – By Paul McCormick, SVP - Investment Sales & Capital Services, Ariel Property Advisors

The U.S. Federal Reserve, as widely anticipated, raised its benchmark lending rate by a quarter point to a range of 0.75 percent to 1 percent on Wednesday, its third rate hike since last decade’s recession and the first under President Trump. The central bank’s policy-setting arm continued to project two more rate increases this year, signifying caution as inflation nears its 2% target.

While President Trump has pledged to achieve a 4% growth rate, namely through lower taxes and increased spending on defense and infrastructure projects, faster economic expansion could hasten Fed rate hikes. The yield on the 10-year Treasury note, last trading at 2.51%, is about 10 basis points lower than a recent two-year high. Yields could move higher, but it will likely take progress toward fiscal stimulus for yields to break out of their current range.

Rising rates will cause properties to qualify for smaller-sized loans, which should drive stronger demand for loans higher up the capital stack, such as bridge loans, mezzanine debt, preferred equity, and common equity. This shift will heighten the need for a seasoned real estate broker who is equipped to capture the best deal possible for an investor. Fed tightening reflects a robust economy, and therefore we expect capital markets to remain healthy this year, enabling investors ongoing access to attractive and reliable financing.

MULTIFAMILY LOAN PROGRAMS

Portfolio Lenders
Term Interest Rates
5 Year 3.50% - 3.75%
7 Year 3.75% - 4.00%
10 Year 4.125% - 4.375%
Agency Lenders
Term Interest Rates
5 Year 3.50% - 3.875%
7 Year 3.875% - 4.125%
10 Year 4.25% - 4.50%

Pricing current as of 03/16/2017 and varies with LTV and DSCR

COMMERCIAL LOAN PROGRAMS
Term Interest Rates
5 Year 3.50% - 4.00%
7 Year 3.75% - 4.25%
10 Year 4.00% - 4.50%
Construction / Development / Bridge
Term Interest Rates
Construction / Development 4.75% - 6.25%
Stabilized 4.75% - 7.00%
Re-Position 8.50% - 10.50%

Pricing current as of 03/16/2017 and varies with LTV and DSCR

Index rates
Index Interest Rates
5-Year Treasury 2.03%
7-Year Treasury 2.32%
10-Year Treasury 2.52%
Prime Rate 3.75%
 
Term Interest Rates
3-Year Swap 1.87%
5-Year Swap 2.15%
7-Year Swap 2.33%
10-Year Swap 2.50%

Pricing current as of 03/16/2017

TREASURY RATES

More information is available from Paul McCormick at 212.544.9500 ext.45 or e-mail pmccormick@arielpa.com.

INSIGHTS ARCHIVE

The information contained herein has either been given to us by the owner of the property or obtained from sources that we deem reliable. We have no reason to doubt its accuracy but we do not guarantee the accuracy of any information provided herein. As an example, all zoning information, buildable footage estimates and indicated uses must be independently verified. Vacancy factors used herein are an arbitrary percentage used only as an example, and does not necessarily relate to actual vacancy, if any. The value of this prospective investment is dependent upon these estimates and assumptions made above, as well as the investment income, the tax bracket, and other factors which your tax advisor and/or legal counsel should evaluate. The prospective buyer should carefully verify each item of income, and all other information contained herein.