The Federal Reserve, in response to considerable volatility resulting from the coronavirus pandemic, has cut its key interest rate to near zero, a first for the central bank since the 2008 global financial crisis. The decrease of one percentage point is the second emergency cut this month and comes in the wake of the worst day for stocks in more than 30 years on March 12. The move was intended to position the market to build on the momentum of March 13’s rebound, when the S&P 500 rose more than nine percent. In a statement on March 15, the Fed noted, “The effects of the coronavirus will weigh on economic activity in the near term and pose risks to the economic outlook. In light of these developments, the [Federal Open Market] Committee decided to lower the target range for the federal funds rate to 0 to 1/4 percent."
However, the rate cut demonstrates that the Fed “is prepared to use its full range of tools to support the flow of credit to households and businesses and thereby promote its maximum employment and price stability goals.” In addition to the rate cut, the Fed brought back Quantitative Easing (QE) which will “support the smooth functioning of markets for Treasury securities and agency mortgage-backed securities,“ according to the FOMC’s statement. The central bank will increase its Treasury holdings by at least $500 billion and its holdings of agency mortgage-backed securities by at least $200 billion over the next several months, as well as reinvest principal payments from the Fed’s holdings of agency debt and agency mortgage-backed securities.
“Interest rates are poised to stay as low as possible for the foreseeable future,” said Matt Swerdlow, Director of Capital Services at Ariel Property Advisors. “Particularly if you’re looking to pivot your investments out of securities or money markets, income producing real estate represents a much more reliable asset, and the recent rate cut has created a prime opportunity to invest.”In response to the coronavirus, mortgage rates have reached the lowest average in 50 years. While the Fed dictates short-term interest rates, mortgage rates will adjust based on long-term bond rates, particularly the yield for the 10-year Treasury note, 1.026%, which has fallen to an all-time low and signals the continued lowering of mortgage rates, potentially down below three percent.
While the coronavirus situation creates a great deal of uncertainty, low interest rates and the federal government’s commitment to promoting growth at this time have created bastions of opportunity for commercial real estate investors in the market to refinance existing or acquire new properties. “In only two weeks, our division has recently put several debt placements into application among a myriad of lenders with rates below 3%. We’ve taken on a tremendous amount of activity in the last two weeks and we’re looking forward to advising our clients through this unprecedented series of events.” said Swerdlow.
MULTIFAMILY LOAN PROGRAMS
|5 Year||2.625% - 2.75%|
|7 Year||2.75% - 2.85%|
|10 Year||2.85% - 3.25%|
|5 Year||3.125% - 3.375%|
|7 Year||3.50% - 3.75%|
|10 Year||3.75% - 3.90%|
*12 and 15 year terms available as well
|COMMERCIAL LOAN PROGRAMS|
|*full-term interest only available|
|Construction / Development / Bridge|
|Construction / Development||4.00% - 5.50%|
|Stabilized||3.00% - 4.50%|
|Value Add||4.50% - 6.50%|
|Re-Position||5.00% - 8.00%|
Pricing current as of March 18, 2020 and varies with LTV and DSCR
Pricing current as of March 18, 2020