Tuesday, January 6, 2009

Looking Ahead to 2009 . . .

Andrew Patterson - Associate Finance Officer, Seattle

2008 was a challenging year for the commercial real estate market, but NBS Financial Services overcame market conditions to secure more than $300 million in commercial real estate loans. NBS originated 75% of its loans with life insurance companies, with the remaining 25% coming from other sources.

Life companies still have money to lend and will be the dominant lenders in 2009. Commercial real estate is a solid investment for these companies that need to match debt with insurance policies, and each year they have new allocations for CRE investments. After years of doing business and developing relationships with so many of these companies, NBS Financial has access to billions of dollars of capital in 2009.

Some economic factors bode well for commercial lending in 2009. Treasury rates, a benchmark for commercial real estate loan pricing, are at historic lows, making the first and second quarters of 2009 attractive for commercial real estate financing. For qualified properties, 10-year fixed rate loans are currently about 6.0%, the lowest these rates have been in years.

2008 Treasury Highlights:
• 10 Year Treasury High (year): 4.27% on 6.16.2008
• 10 Year Treasury Low (year): 2.06% on 12.30.2008

Issues Affecting Commercial Mortgage Rates:
• 10 Year Treasury at historic lows
• Life Companies still have money and are active in the market
• Lenders trending towards lower loan to value and higher debt service coverage ratios as they under-write more conseratively
• Cap Rates trending upward
• Life Companies will be the dominant lending source for commercial real estate in 2009

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