Fast and Furious

By Mark Scott, Founder & President, Commercial Mortgage Capital: Leasing activity has heated up considerably over the past few weeks and not only for multi-family products.

Mark Scott

Leasing activity has heated up considerably over the past few weeks and not only for multi-family products, but also office and industrial assets. This acceleration may be due largely to new Federal Reserve Chair Janet Yellen’s foggy indications of Fed patience when it comes to interest rate escalation as well as the fate of QE3 bond buying. During her first press conference, Yellen noted in an exceptionally noncommittal manner that the Fed could hike rates “around six months or that type of thing” after the U.S. Central Bank ends its bond buying program – otherwise known as QE3 – which sent stock and bonds into a downward tailspin.

Though Yellen has since claimed in an equally vague remark that the Fed’s “extraordinary commitment is still needed and will be for some time,” her comments are counter to the market’s perception that the Fed would raise interest rates nine or 12 months after the end of QE3. As a result, borrowers are eager to capture new leases and secure financing before rates rise.

Meanwhile, lenders are looking to hit their budget goals early and thus pricing (loan spreads) are typically tight in the first quarter of the year. According to Jaime Woodwell, Vice President of Commercial Real Estate Research at the Mortgage Bankers Association, “Early indications are that commercial and multi-family lenders increased originations by 15 percent in 2013. This year will once again see fewer loans coming up against their maturities. But with still low interest rates, improving property fundamentals, a rebound in property prices, and higher loan maturity volumes on the horizon, we anticipate mortgage originations will continue to increase in 2014.”

Though we can expect to see more transactions in 2014, there is still a level of uncertainty in the market, especially as the unemployment rate continues to rise – hitting 6.7 percent in February, up from 6.6 percentin January – combined with continued confusion about the fate of interest rates. As a result, now is the time for borrower’s to lock in today’s low rates with a seasoned mortgage professional.