Lending activity in 2008 has been reported by many to be down 50 percent from last year’s already lower figures due, in part, to a lack of sales activity and a general slowdown in the economy. Refinances are also not as plentiful because many refinanced when the 10-year rates were at 6 percent or below with no need to pull cash out or be subjected to a large prepayment penalty.
Those looking to refinance for reasons other than a maturing loan are in a wait-and-see attitude, hoping to obtain longer-term fixed rates less than the current 6.5-7 percent market. If they already had a fixed rate, it may have rolled into an adjustable, and the floating rate may be advantageous for now, given the low-loan indexes (prime, Treasury, LIBOR), so there is no rush to convert to a fixed rate.
All this being said, the industry is still seeing financing completed in all areas of the country, including some large portfolio refinance transactions and expansion purchases by growing companies. Rates remain relatively stable and competitive on a historical level and deals can still make sense.
There is more short-term (five years or less) money available than longer term, and the rates can vary widely depending on location, lack of lender competition and deal parameters. One can expect to find rates between 6 and 7 percent for the most part. Depending on loan term and amortizations, the loans should be in the 20- to 30-year range in most areas. Non-recourse loans are harder to come by. The biggest issue compared to previous years is the lack of lender choices and loan options available on a national basis.
Allow yourself plenty of time to research financing options and be prepared to possibly extend the closing time on purchases to allow for the financing search and lender funding timelines.
Next year will likely mirror 2008 with respect to rates and financing issues as the single-family residences debacle has still not fully played out, the upcoming bailout of Fannie Mae and Freddie Mac is yet to come, and the presidential election may certainly affect interest rates, the economy and world events. If you’re expecting rates to drop significantly, I wouldn’t hold your breath. It is probably as good as it is going to get for a while.
David Smyle is president of Benchmark Financial. The La Mesa, Calif., company is a commercial mortgage banker providing financing options for self-storage and other commercial property types nationwide. To reach him, call 877.862.7916; visit www.benchmarkfin.com.