- $68 million fixed-rate Fannie Mae Conventional loans
- Multifamily - 1,106 units across four properties
- Philadelphia-Camden-Wilmington MSA, Pennsylvania and Delaware
Seize the Moment
27 November, 2011
These are strange times in the capital markets, with a series of looming financial crises interacting in complex and unexpected ways. While most segments of the market are being battered, multifamily borrowers are facing some of the best pricing ever. My advice: take advantage of these conditions while they last.
You May Never See Rates Like These Again
Consider the behavior of the 10-year Treasury bill. With the U.S. economy struggling and political gridlock dominating the news, the outlook for borrowers should, under normal conditions, have been stormy. However, investors evidently found the debt crisis in Europe to be even more unsettling. As a result, the yield on the Treasury bill continued its slide through late summer and into the fall, settling around 2 percent. We are now in record or near record territory on a daily basis.
Even more remarkable, spreads and Treasuries, which usually travel in lockstep, decoupled at times recently when spreads rose more slowly than treasuries fell. This highly unusual event happened once this decade, about a year ago. Typically, when yields on treasuries drop a basis point, spreads rise a basis point. But this has not been the case for GSE spreads recently, making GSE mortgage rates extremely attractive. This contrasts with the response of GSE competitors. With coupon floors starting to kick in, their spreads are widening.
Give Yourself a Six-Month Grace Period
The low GSE rates, of course, are wonderful news for multifamily investors ready to borrow right now. Thanks to a simultaneous drop in the cost of forward rate-locks, investors who can act within the next six months can also take advantage of these rates. During recent months, the cost to lock in for six months has been historically low.
Given the volatility we’ve witnessed in the markets over the last two years, there’s no telling how long this set of conditions will last. But one thing is clear: by seizing this very unusual moment, borrowers will be in that much better shape to withstand whatever the future has in store.
