Headline News

Outstanding Commercial and Multifamily Debt Increases

According to a new report from the Mortgage Bankers Association (MBA), the level of commercial/multifamily mortgage debt outstanding increased by $25.2 billion in the third quarter of 2013, as all four major investor groups increased their holdings. That is a 1.0 percent increase over the second quarter of 2013. Total commercial/multifamily debt outstanding stood at $2.47 trillion in the third quarter. Multifamily mortgage debt outstanding rose to $887 billion, an increase of $10.8 billion, or 1.2 percent, from the second quarter.

 

CMBS Delinquency Down Over 200 BPS from Year Earlier

Delinquency on securitized commercial real estate loans has plummeted more than 200 basis points over the past year and is well on its way to a four-year low. Industrial property loans had the greatest month-over-month improvement, while multifamily performance deteriorated.

 

Past Treasury Bond Yields – Why Commercial Real Estate Loan Interest Rates Widened in May

Treasury (U.S. bonds) prices fell sharply in May sending yields skyrocketing marking the worst month since December 2010, as stronger than expected economic data caused worry the Federal Reserve might slow its bond purchases earlier than expected. Treasury yields retested their highest levels in more than 13 months. The benchmark 10-year Treasury note surged from a yield of 1.61% at the beginning of May to end the month at 2.16%, down slightly from the monthly high of 2.23% set days earlier. As a result, commercial real estate loan rates increased accordingly as most lenders use the Treasuries as a basis (index) for setting interest rates. Commercial loan rates are comprised of an index and a spread. As Treasury prices slide, yields increase and therefore directly affect rates.

It’s unclear if current Treasury prices will find a home in their current range as investors scale back purchases as concern grows that reduced Fed purchases will cause long-term yields to rise. Investor concern mounts over uncertainty about how to get back to Treasury bond fair market value after the Fed tapers and eventually ends quantitative easing. Commonly called QE3, the Fed has committed to purchasing $85 billion in Treasuries and mortgage-backed securities. At his congressional testimony last week, Fed Chairman Ben Bernanke said a decision to pare the Fed’s current pace of bond purchases may happen at one of Fed’s “next few meetings” if the economy looked set to maintain momentum.