June 18, 2002

Commercial Mortgages & Real Estate Loan News:
Are we there yet?

With half the year already behind us, it's becoming increasingly clear that the Fed is unlikely to increase loan rates in the foreseeable future. Consumer spending, business investment and inventory growth are all factors that weigh heavily in measuring the pace of economic recovery - all of which are lagging slightly and give the Fed reason to sit still for fear of impeding a recovery. Commercial real estate, however, seems to be working through the cycle reasonably well, and perhaps largely as a result of lender-imposed discipline. Below is a quick report of what we're seeing "From the Street".

Interest Rates: Fixed and variable commercial real estate loan rates are extremely low and not likely to change anytime soon. We should see loan rates remain low throughout the next six months.

Supply & Demand: Demand is extremely high, while commercial supply remains extremely limited. It's a good time to be a seller, but it's tough to find another property to trade into.

Hotels: Hotels seem to have seen the worst of the corrective cycle and now we're seeing commercial real estate loan lenders that were out as recently as two months ago coming back into the commercial mortgage market.

Office: Proceed with caution. Depending on which mortgage market you're considering, there's still a considerable amount of space that is technically "occupied" but not being utilized - so do your research to determine how much available space exists within each sub-market. Rental rates seem to have returned to a more stabilized pre-dot.com level, but vacancy remains high. We believe its premature to predict the bottom just yet.

Industrial: Stable.

Retail: Newer vintage and well-positioned older centers remain extremely strong.

Apartments: Rents softened, but appear to be stabilizing. Overall - always a favorite commercial real estate mortgage and loan market.

Insurance: In an Op Ed in the June 5 Washington Post, AIG Chairman Hank Greenberg advocated a broad-based federal terrorism insurance backstop to cover losses resulting from all forms of terrorism. Greenberg argued that the insurance industry is not capable of insuring against the risk of war or nuclear, chemical and biological attacks on any mass basis, and that the private sector simply does not have the financial capacity to cope with such enormous losses. This can be done only by government, he stated, and without federal intervention, these losses must, under the workers' comp laws of every state, be borne by employers and insurers. The U.S. Senate began debate today on back-stop legislation. Disagreements between Republicans and Democrats over punitive damage awards have held up passage of a bill.

Once again, Steelhead Capital is happy to assist you with your commercial real estate loan and mortgage financing needs, and we hope this week's overview is helpful in keeping you informed.

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

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