Authored by TMO guest blogger: Mark Jeffries, Vice President, Q10 | Essex Financial Group
Over the past 9 months or so, the credit markets have experienced a shake-up unlike any in recent memory.
The main impact of this on retail property permanent financing is related to the fall-out of Conduit or CMBS (Commercial Mortgage Backed Securities) lenders. As recently as the summer of 2007, retail property owners and purchasers were able to obtain 80% loan-to-value financing from a CMBS lender without much difficulty. Life Insurance Companies were typically offering 70-75% financing with similar fixed rates to CMBS. Today, without the need to compete with CMBS, Life Insurance Companies have scaled back to leverage levels in the 65-70% range. The good news is that fixed rates from Life Companies are currently in the 5.75% to 6.5% range, are most often non-recourse, and can offer fixed terms of up to 25 years. One of the potential dangers on the horizon is inflation, which could lead to higher interest rates across the board.
If a property owner is considering a refinance it makes sense to lock in a rate soon rather than later in my opinion. We’re happy to provide financing estimates and analysis to assist borrowers in making difficult strategic capital decisions. Retail properties continue to be viewed favorably by Life Companies as vacancy rates remain low in most markets. We anticipate the capital markets will stabilize later in the year, and CMBS will return to the scene but likely on a more limited basis.
Mark can be reached at 303.843.4023