Capital Markets UpdateApril 27, 2018 Off By Chris
The investment market is still very active and for those in the market, you will know that there are a lot of buyers chasing a limited supply of properties. Markets like this reward buyers who have experience and knowledge. Hopefully, we are one of the resources that you use to when you are looking to purchase a new property or sell one of your existing ones. Markets change and when they do, the investor needs to change as well in order to be successful.
We recently sent an update to our clients letting them know what is going on in the capital markets. One of the areas that buyers will watch is the cost of funds.
Regarding our recent update on the capital markets, here are a few points that I felt were worth passing along:
- Interest rates continue to rise on strong economic data. The 5-yr and 10-yr USTs each increased by 25 basis points during the past 4 weeks and the spread between the two are the tightest it has been since August 2007. The tight spread makes it very hard to tell the difference at different terms.
- One strategy that borrowers are taking for the low cap rate deals is to take less financing to keep the leverage in the positive.
- Despite the interest rates climbing, the cap rates are not increasing for properties with good credit tenants. We are still seeing cap rates for these investments at record low rates.
- As central banks gradually scale back, monetary policy still remains highly accommodative by historic standards and supports continued growth in real estate.
In addition to these points, a few things I am seeing in the most recent round of deals that I’ve completed are:
- Sellers are pushing values of their properties and buyers are being required to step up their offers to levels just above the last round of deals in order to get a deal done.
- Having a good appraiser involved who knows what is happening in the market is important to getting a deal completed without any major hiccups.
- The buyers that are inexperienced and out just looking for a “deal” are not going to be successful unless they are willing to push their boundaries for return and price and listen to their brokers recommendations on what they need to do to be successful.
- Buyers that take the time to assemble a resume of their past transactions will get further than buyers that don’t take the time to do this exercise.
- It is very important on which financial institution you align yourself with as the wrong one can cost you a property or worse, your deposit could be at risk if you don’t successfully follow through on what your purchase contract says you will do.
If you are considering buying a property in today’s climate, please give me a call so we can talk about what you are looking for and develop a strategy for you so that you are successful and not just a buyer watching all the activity that is happening in the market. Despite the recent interest rate increases and low cap rates, the banks are able to lend to qualified buyers which makes the current climate a good time to buy and sell. I look forward to hearing from you and in helping you in any way that I can.