September 25, 2001

Commercial Mortgage:
Rates after September 11th

As you can imagine, there has been a high level of confusion and uncertainty within the commercial mortgage and capital markets stemming from the recent WTC attacks. Life companies appear to be temporarily out of the market - awaiting stabilization within the bond market; while conduits appear to working towards re-establishing operations as soon as physically possible, but all the while quoting and committing as best they can. Most of the commercial mortgage lenders we've spoken to over the past two weeks have been operating out of their homes or other branch offices outside of New York City in an effort to maintain productivity. We believe that this week will end with most, if not all, commercial mortgage lenders being back in the game.

So what can we expect of commercial mortgage rates? Again, there's a mixed bag of reactions taking place while the market struggles to stabilize. With interest rate indices at historically low levels (10-yr. Treasury was trading at 4.68% this morning and the 30-day LIBOR at 2.66%), most commercial mortgage lenders are implementing Interest Rate Floors that exceed what the actual commercial mortgage rate would be without the floor. It's expected that we'll see a widening of spreads to the tune of 10 to 25 basis points, with one particular commercial mortgage lender stating, "as soon as business returns to some form of normalcy, we'll be reviewing our pending pipeline to determine whether our former pricing is reflective of the current commercial mortgage market", i.e. they're not afraid to re-price the loan if it looks like they're under water on any particular deal. We'll keep you posted on this issue, as the situation is somewhat reminiscent of the 1998 capital crunch and is obviously not real popular among the commercial mortgage and borrowing communities. Naturally, there's been quite a bit of confusion on all levels over the past two weeks, and the appropriate course of action, where flexibility permits, is to allow the capital markets to make their adjustments before drawing any conclusions.

Despite the recent chaos, commercial mortgage rates remain very low and volume appears to be high as we head into the final quarter of 2001. In a report published by the Mortgage Banking Association, the following summarizes how the aggregate commercial mortgage lending sources are stacking up:

"Fannie Mae and Freddie Mac together funded the largest share of loans originated by commercial/multifamily mortgage members of the Mortgage Bankers Association of America (MBA) during the first half of 2001, according to MBA's latest survey results.

With a combined financing share of 28.8 percent, this is the first time the two government-sponsored enterprises (GSEs) have been in the top position since MBA began surveying its commercial and multifamily members two years ago. Life companies, traditionally the largest source of funding for commercial mortgage bankers, slipped to third place with a 22.9 percent share, behind private conduits with 24.3 percent. Fannie Mae's share alone was 19.6 percent, only slightly less than the combined share of all life insurance companies.

Fannie Mae and Freddie Mac funded 60 percent of all multifamily originations by MBA members, up from 40 percent for the first six months of last year.

Total commercial/multifamily originations for the first six months were $32.6 billion, up 30 percent from the same period last year, but down 12 percent from the second half. Most of the increase was due to multifamily lending."

Another perspective relative to new supply coming on-line suggests that over-building will not pose a threat given an overall slowdown in new construction. As noted by Jeff Williams of Lend Lease: "Construction loans peaked in 1998 at $98 billion and it is these funds and the buildings they support that are being delivered. Construction lending has since dropped 24% to $75 billion in 2000 and should remain relatively low due to the slowdown in the economy, which should lead to a further contraction in the construction pipeline as the economy recovers next year, further stabilizing the commercial mortgage market."

To summarize, it appears as though the short-term commercial mortgage picture has yet to reveal itself, but that the broader economic factors seem to suggest some level of stability occurring in the first two quarters of 2002. Commercial mortgage rates should remain low for the foreseeable future, and provided the capital markets can shake off the recent detour we will continue to see more commercial mortgage investment opportunities on horizon.

Read the next commercial mortgages & loans newsletter "From the Street"

Commercial Mortgages & Real Estate Loans Newsletters

About once a month you will receive news regarding commercial mortgages and real estate loans with our newsletter "From The Street." Click here to subscribe and receive your first commercial mortgage issue within just minutes - it's free!

With an extensive lender and commercial mortgages network, Steelhead Capital has built its reputation on structuring commercial mortgages and commercial real estate loans requiring both debt and equity placement. Fluctuations in the capital commercial mortgages present significant challenges for investors and we are pleased to provide financing, as well as, guide and advise its clients through the process of obtaining commercial mortgages. Whether you are looking for apartment financing, commercial financing, commercial mortgages, or creative "out of the box" real estate loan alternatives, we can help.

Our success is measured by our clients' success, and our mission is to be your source for the most appropriate - and advantageous - commercial mortgage solution that helps you achieve your goals. Make Steelhead Capital a part of your commercial mortgage and real estate financing success. We look forward to hearing from you soon regarding our commercial mortgages and real estate financing services.

Call us today toll-free at 888-951-6600 or click here for your confidential and complimentary loan review.