Cap Markets Improve By the Minute

Minute-by-minute. That’s how the head of mortgage operations at New Jersey’s (and one of the nation’s) largest insurance company described the improvement in the real estate capital markets (and lending spreads) at the Mortgage Bankers’ Commercial Real Estate Finance Conference held in San Diego.

Not only was the weather sunny and warm, but a majority of lenders at the conference were warming up to lending overall and, in particular, in New Jersey, New York and Connecticut as well as Boston Washington, DC and a few other major metro markets.

At the conference it was made clear that spread quotes on loan business is tightening. And competition to lend money is heating up. On low loan-to-value (10-year/30-year amortization) secure loan transactions, spreads improved from 150 basis points over the 10-year Treasury to below 125 basis points by the end of the conference. In fact, Fannie Mae announced a decrease in its multifamily lending spreads by 20 basis points during the conference. In 2010, GSEs Fannie Mae and Freddie Mac accounted for over 80% of all lending on multifamily properties nationwide.

The great news for New Jersey is than many lenders want to increase their investment in our state. Our real estate markets have weathered the past few months well. It may not seem so to us, but on the national landscape New Jersey remains one of the top five markets for major life companies, banks, CMBS and the GSEs.

Nationwide, multifamily assets are the darling of investors due to the financing available from the GSEs as well as their relative strong performance in the recent downturn. New Jerseys multifamily market is supply constrained and that enhances the desirability of lenders investing in our market. Lenders also talked favorably of anchored retail and stabilized office properties.

The news from the conference included the return of securitized lenders to the market. Investment and commercial banks had disbanded, closed or mothballed their CMBS lending operations. But most of these lenders announced aggressive loan volume targets for 2011. The return of CMBS lenders will enhance liquidity and well as loan alternatives for borrowers and owners.

Mark Scott is the President of Livingston, NJ-based Commercial Mortgage Capital. He can be reached at mscott@newcommercialmortgage.com. The views expressed here are the author’s own.