The apartment loan rate we track popped up into the 4.70s today after spending the last three weeks in the 4.60s. Today’s 4.71% rate is about the same as it was a year ago, just before the taper tantrum hit. Monday quotes on the 10 year Treasury have climbed two weeks in a row now but remain below most recent highs of March, clocking in at 2.62 today. The downward march of the spread has flattened recently in the 2.0 – 2.15 range, including today’s number at 2.14. The ULI <60%LTV rate still looks like someone bouncing a ball down the stairs but their data is lagged a week so we’ll have to check back on Friday to see if that rate is going to tick up as well.
The apartment building investment loan rate we track continued to trend downward as both the 10yr Treasury (T10) and the spread between the two came in during April. Today’s new rate on the loan is 4.733%, a 212 basis point spread over the T10 which was in the 2.61% area today. The six month moving average spread continues to fall suggesting that lenders are more confident and/or aggressive but the spread itself is above the March 17 low of 209bp.
This month we add a new rate which the ULI (Urban Land Institute) reports on from the Trepp survey. According to the ULI the Trepp rate is what large institutional borrowers could expect to pay on a 10 year fixed rate, less than 60% LTV loan for a “crème de la crème” core apartment property located in a gateway market. We track this rate as a barometer of what the largest lenders are offering their best customers on the most secure loans for any advanced warning about future rate and spread changes. See the ULI<60LTV Rate on the chart below (in gold). Note that the spread we chart is between 10yr loan we track (in orange) and the T10 (in blue):
Apartment building investment loans in 2014, thoughts and predictions on what’s in store from lenders large and small and the organizations who represent them:
Greystone via MultiHousingNews: We do think there will be more capital available,” says Bob Barolak, co-COO at Greystone. Lenders will become even more eager to make loans in the multifamily space, he says, because of greater confidence in the economy and markets.
Another major reason for an expected bump in capital available in the next 12 months is that CMBS financing has come back into the multifamily sector—from a volume of practically zero in 2012. They will continue to increase market share significantly in 2014.” Currently, CMBS multifamily financings are carrying interest rates of about 5.10 to 5.20 percent, or about 10 to 15 basis points lower than rates in Fannie Mae transactions, according to Barolak.
Maximum LTVs on CMBS loans—up to 75 percent on 10-year terms for multifamily properties—have also become competitive with those of Fannie and Freddie loans. Moreover, CMBS lenders can become “extremely aggressive” for deals they want to acquire to round up a securitization pool, Barolak says. In such instances, “they can dramatically lower the interest rate significantly below what Fannie and Freddie will offer.”
Loan-To-Value Ratio (LTV) = Total loan balances (1st mtg + 2nd mtg) / Fair market value (as determined by appraisal). For Multifamily mortgages, LTVs seldom exceed 80%.
Debt Service Coverage Ratio (DSCR, aka DCR, DSR) = Net Operating Income / Debt Service. Most lenders insist that this ratio exceed 1.2 with a few a allowing 1.15.
Personal Debt Coverage Ratio (PDCR) = Monthly Personal Debt / Monthly Personal Income. The Personal Debt Ratio compares the amount of bills that the borrower must pay each month to the amount of income they earn. Personal Debt Ratios seldom are allowed to exceed 50% in practice.
Local and regional banks are working hard to fund ‘small’ apartment building investments in their local markets. Small loans in the $1-3 million dollar range are the ‘sweet spot’ for these lenders and investors looking for loans in the $3-5 million range are finding even more choices. For loans under $1 million the market is still pretty fragmented with lenders there averaging only five loans of that size.
“Banks are trying to create more aggressive lending programs in the small-balance multifamily financing space.”