Friday, February 6, 2009

Rates Still Low and Seattle a Bright Spot for Commercial RE Lending

Andrew Patterson - Associate Finance Officer, Seattle

The 10 Year US Treasury, a benchmark for commercial lending rates, is still at historically low rates even after a 50 basis point increase since late December. During a recent Federal Open Market Committee meeting, leaders voted to keep the federal funds target at "exceptionally low levels for some time," though many analysts fear inflationary pressure will result in long term rates trending up in 2009 and 2010. The expectation of an ever-expanding Treasury supply is also putting upward pressure on long term rates, despite the Fed’s best intentions. If you have a loan coming due in the next 18 months, it might be prudent to look at refinancing early.

According to a recent Marcus & Millichap report, Seattle is the #5 apartment investment market in the country. Despite the local housing market slowing and several major local companies announcing layoffs, the "Seattle apartment market will continue to attract investors." The report also predicted an "above-average rent growth forecast" of 2.7%. Renter demand is expected to increase due in part to multi-million square foot office leasing commitments in the Bellevue and South Lake Union submarkets from technology companies like Amazon and Microsoft.

Our Life Companies are actively quoting and closing commercial real estate loans in the Seattle area. Many of these lenders are focused on making loans in the first half of 2009 because of growing concern in the credit markets and the overall economy. At NBS Financial Services, we are continuing to close commercial real estate loans all over the greater Puget Sound area.

January 2009 Treasury Highlights:
• 10 Year Treasury 45 Day Low: 2.05% on 12-30-2008
• January 10 Year Treasury High: 2.85% on 1-31-2008
• January 10 Year Treasury Low: 2.20% on 1-14-2008

Issues Affecting Commercial Mortgage Rates:
• Life Companies have money and are active in the market
• Market flooded with US Treasuries causing benchmark rate to increase
• Cap Rates trending upward, in the Seattle area by 50 to 100 basis points
• Fannie Mae & Freddie Mac tightening underwriting criteria, raising rates on short term lending
• Future Treasury volatility predicted as we move through the financial crisis