Good morning to Summertime Investing,
Commercial Lending
The Business and Investor Side of Our Business
Good News for now: Our interest rates are holding quite steady. This after the latest inflation rates near Fed target numbers. Yet, I doubt these numbers are enough to stop another small bump at the next Fed meeting. After that, I expect another such small jump by years end. For investors, the better numbers to watch and compare are tied to the US Treasury notes.
Consider: Over the past year, 10-year Treasury has traded between 4.25 % and 3.5 %. This despite the Fed funds rates increasing by 2.75 %. Good news: Rates that concern you, are not directly tied to actions by the Federal Reserve Board. Are there overlapping components? Yes.
1) Interest rates: Rates continue trending sideways. Up the past couple of weeks in response to the debt ceiling reset and future expectation of even more bonds being sold to cover the reset costs. Good News: Latest inflation numbers were much calmer than previous data. Between the two, interest rates have bounced back from their highs, to the middle of the trading range. Call to learn more. Let’s review how these numbers influence your mortgage decisions.
2) Residential Real Estate: Nationwide, we are seeing an increase in activity and overall prices going up. Why up? The joy of Springtime buying continues plus a tight supply of available housing – expected Springtime increase in listings did not occur. Realtors across the country are reporting a bit over 50 % of homes, in contract, are for more than list price.
3) Commercial: Jobs, expectations, and Federal Reserve policy weighs on commercial real estate. Call us. Let us help you prepare the ways to best navigate these choppy waters.
Outcome: Conversations with many Federal Reserve members suggests future rate hikes. Expect no reductions in 2023.
Good News: Commercial investing, as a whole, is quite diverse. It is able to match and meet most commercial investor’s financial goals and interest. Our goal: Matching each of our clients with the best lending options and customized programs. Let’s talk, today. Early prep is key.
Call us. We are ready to help today.
Economic News
Banking and Financing: In short two thoughts: Careful planning and strategic preparation. It is what the market demands. Many institutions are cautiously on the side-lines. Staffs are being trimmed, as bank management carefully reviews balance sheets. Signature, SVB, First Republic were red flags to needed discipline. The coming years: Challenging.
Insurance companies, a regular source for commercial financing, is also adjusting. Why? Less capital to deploy, as insurance claims continue at record paces due to past flooding, storms and fire events. Expect jumps in premiums.
Retail, Restaurants and Hotels: Holding up quite well. In spite of a drop in savings and inflation fears, people enjoy the relaxing fun of food and entertainment. Expected declines have not yet materialized. People are imaginative and quick to adapt, when needful.
Manufacturing: Continues tot be a bright spot. Adding jobs each month.
Office Demand: Herein lies the problem child – formerly shopping centers. Contrary to some difficulties in certain specific markets – San Francisco and Manhattan, as two – overall the sector is showing a slow increase in demand. This Spring increase in demand is outpacing the past 5 years. Yet, softness is expected to continue as theVODI (VTS Office Demand Index) is still 4.5 % below the same time last year.
Wild card dilemma: In balancing P&L and Balance Sheets, CEO’s may choose downsizing real estate vs layoffs. This is good for employees and speaks to the job market ”feeling’ tight. Yet it may prove a lasting occupancy challenge for commercial office space and buildings.
CAP rates: For apartments: Currently trending near 5 %, up almost 0.6 %, year over year. Retail properties up about +1/3 %, to an average of 6.5 %. Urban storefront holdings are up the best.
While the Office sector shows the least increase year-over-year – 0.2 % – but averaging 6.7 %. Breaking this sector down, the Suburban is averaging 6.8 % while Core (CBD) is about 5.8 %.
Industrial – the bright spot the past few years – has also risen about 1/3 % to near 5.5 %. Single tenant is about 5.7 %.
Good News: Our commercial success continues. Working through business-purpose loan requests when documentation is sketchy, but real estate equity is strong. How does this work? It works because of who we are. We offer so many lending partners to provide the flexible loans, excellent programs and great terms to move your life forward. Our track record is proven. It does keep our phone ringing. Let’s talk. We can help.
Of particular need: Loans coming due. They are in high demand, as evidenced by our increased work to refinance various commercial properties. Suggestion: Check loan parameters and due dates, and don’t miss the annual lender requested financial statement. Key: Stay ahead of coming dates, and keep your lender smiling. Let’s talk. Good organization works.
Good News: We have great lending partners. They respect our work and attention to detail. This is good news for you, as they trust our approach and loan packages. In response, we carefully strive to maintain the quality of their depository relationships. This is called team chemistry and is what makes our lending relationship, a winner. Join our team.
You have heard me say: It starts with a first conversation. Let’s talk.
Let the fun of Summer begin. Early walks and longer days, as fruits are ripening.