Apartment Loan Rate Falls To Nine Month Low of 4.743%

After spending just one week above its six month moving average the spread between the apartment investment loan rate we track and the 10 year Treasury (T10) fell to 2.143 with the apartment loan rate at a nine month low of 4.743%. Meanwhile the T10 bounced up to 2.8%, climbing 20bp in the past week:

Apartment Invesment Loan Rate vs. 10 year Treasury March 2014

Speaking of the spread between the T10 and the ten year apartment loan rate, now that we have more than a year’s worth of data we’ve improved the charting of the average spread to be a six month moving average rather than a flat one year average. Because the rate data we reference is reported on business days only we are averaging the previous 120 business days which works out to roughly six months. Some time in June the spread average visible on the chart will be a complete moving average. Until then, for dates before last June the chart shows the year to date average. Also updates on our chart going forward will track the trailing twelve months data.

We track the 10 year Treasury because that is the benchmark most lenders base their long term rates on. In order to lure investors away from Treasuries to buy mortgage bonds lenders have to offer a premium (AKA ‘spread’) over what can be earned on the Treasury. So when the T10 moves, rates on all kinds of longer term loans including on apartments tend to move also. As you can see in the chart, the spread also widens and narrows as market forces make an impact.

Notes about the apartment loan rates shown in the chart above: The rates shown here are from one West Coast regional lender for loans on existing apartment buildings between $ 2.5 – 5.0M. The rate quote they send every Monday that I track is a 30 year amortizing loan with a fixed rate for 10 years (They also have other fixed periods at different rates). The max LTV for this loan is 75% (they have an even lower rate on their max 60LTV loans) and the minimum Debt Cover Ratio (DCR, aka DSR or DSCR) is 120. Note too that these are ‘sticker’ rates, LTVs and DCRs and ‘your millage may vary’ depending on how their underwriting develops.  I usually figure that we’ll end up at a 70LTV which also helps the debt cover and provides a larger margin of safety, which is half the battle from a value investing standpoint.

The prepay fee is 5,4,3,2,1% for early repayment in the first five years and you do have the ability to get a 90 day rate lock. The minimum loan is $ 500k (at a slightly higher rate for less than $ 1M loans) and they’re pretty good to work with as long as you go in knowing that it takes up to 60 days to close their loan. If you are looking at acquiring an apartment building in California, Oregon or Washington I’d be happy to recommend you to my guy there for a quote. Send me a message through this link and I’ll get you connected.

How the St. Louis Fed calculates the 10 year Treasury rate displayed above: “Treasury Yield Curve Rates. These rates are commonly referred to as “Constant Maturity Treasury” rates, or CMTs. Yields are interpolated by the Treasury from the daily yield curve. This curve, which relates the yield on a security to its time to maturity is based on the closing market bid yields on actively traded Treasury securities in the over-the-counter market. These market yields are calculated from composites of quotations obtained by the Federal Reserve Bank of New York. The yield values are read from the yield curve at fixed maturities, currently 1, 3 and 6 months and 1, 2, 3, 5, 7, 10, 20, and 30 years. This method provides a yield for a 10 year maturity, for example, even if no outstanding security has exactly 10 years remaining to maturity. For even more detail see: http://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/yieldmethod.aspx

As a reminder, one basis point or 1bp is equal to one-one hundredth of one percent or .0001. When you hear ‘fifty basis points’ that’s one-half of one percent; ’125bp’ would be 1.25% or a percent and a quarter, sometimes referred to as ‘a point and a quarter’. A bp seems like a tiny number, too fine to make a difference but in the debt world if you can squeak out an extra 20bp on a 100 million dollar deal (like a pool of apartment building loans) that’s $ 2oo,000.00 in your pocket. To paraphrase Everett Dirksen: “20bp here, 20bp there and pretty soon you’re talking about real money.”


Ashworth Partners

Efficiently Raising Capital for Private Real Estate Deals

I was at a breakfast round-table discussion with a bunch of bigwig private equity fund managers and the conversation centered largely on the challenges of raising capital.

While I don’t know much about the institutional fundraising process, I’m intimately familiar with syndicating real estate deals to a group of HNW investors. It’s an extremely cumbersome and inefficient process that includes countless emails, phone calls, meetings, and administrative tasks eating up time that should be spent focusing on due diligence and cultivating a business plan.

Having deep-pocketed investors who blindly trust you is great, but the ability to grow comes from expanding your investor-base. Here are a few of the things we do to facilitate the capital raising process:

Create a Compelling Investor Memo: A good investor memo not only sells the upside in a deal, but also runs through all the downside scenarios. One of the main challenges is that you’re writing to a large audience of both non-real estate and real estate professionals alike. You need to provide detailed information while not being overly esoteric. Easier said than done.

Provide Regular Due Diligence Updates: As we go through the due diligence process we provide potential investors with weekly updates of our findings. This keeps investors engaged and is often enough to get interested investors over the hump.

Utilize Technology: Existing technology platforms can streamline the capital raising process from contributing capital online to online document signing.

Create a Personalized Pitch: Guys invest in private real estate deals first and foremast because of the relationship they have with the sponsor. When raising capital we aim to meet as many investors in person as possible. However, investors are often spread out throughout the country. In order to replicate the personalized face-to-face meetings, sponsors can create video pitches for investors.

Provide a Detailed FAQ Page: Throughout the capital raising process we receive and answer a ton of good questions about the deal. Add those questions to a running Google Doc and share it with interested investors. It often exposes positives in the deal that weren’t clearly conveyed in the initial memo and creates a deeper level of trust.

Have A Simplified Summary of the Operating Agreement: Many new investors want to know what happens in the event of a capital call or if they need to exit their investment. Rather than sending the overly-jargoned operating agreement, provide a layman-term version of your operating agreement so perspective investors get a sense of the structure. They’ll run the doc by their attorney prior to investing anyway.

As real estate companies continue to grow their investor base it becomes harder to have direct personal relationships with all of them. Here are some ideas that can enable companies to scale those relationships a bit more efficiently:

  • Host events in major cities. Many of our investors reside in Boston, NYC, DC, San Francisco, and Miami. Host dinners, golf outings, and connect investors for professional networking purposes.
  • Write hard-written thank-you cards. When investors put money into a deal, they’re taking a chance with the sponsor. This is an unregulated business so there is an inherent level of trust investors must have. Let investors know that you appreciate that trust.
  • Create content. Establish yourself as a thought-leader in the industry by publishing quarterly or annual investor letters. Investors want the comfort of knowing their money is being managed by smart real estate professionals.

What do you think?

A Student of the Real Estate Game

Dunkin’ Donuts gets in on ground floor in Bronx

Pelham Bay – Dunkin’ Donuts, the ubiquitous national pastry and coffee chain, has signed on for a 10-year lease in the soon-to-be fully completed Hutchinson Metro Center, a mixed-use 42-acre campus…

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Real Estate Deal Watch – Crain’s New York Business

Self Directed Plan Responsibilities — Video

Though investors wanting expanded choice and more control of their future love self directed retirement plans, they sometime don’t understand self directed plan responsibilities.

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BawldGuy Talking

New York: finally, a great place to die

At the stroke of midnight on April 1, it became significantly cheaper for many New Yorkers to die in their home state.

As part of the budget agreement reached in Albany over the weekend, legislators…

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News – Crain’s New York Business News Feed

Tesla reaches deal with NY auto dealers

Tesla Motors Inc. and New York auto dealer lobbying groups reached an agreement that allows the electric-car maker to keep its five company-owned stores in the state and add others, Gov. Andrew Cuomo…

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News – Crain’s New York Business News Feed

Wicked returns for his investors

Ten years after winning a Tony Award for portraying Elphaba in the hit show Wicked, Idina Menzel returns to Broadway as the lead in the new musical If/Then.

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News – Crain’s New York Business News Feed

Industrial Vacancy Continues to Decline

North American Industrial Outlook Colliers International monitors industrial market conditions in 77 North American markets. North American industrial vacancy continues to decline in markets tracked by Colliers, inching toward 7.5 percent at the beginning of 2014. In Q4 2013, the North American industrial vacancy rate declined another 20 basis points from 7.89 percent to 7.69 […]

Industrial Vacancy Continues to Decline is a post from: The Tenant Advisor


Invest in Real Estate or Buy Notes — Video

Many will be surprised hearing an investment real estate broker advising some investors not to buy real estate this time out. It can be confusing at times, whether to invest in real estate or buy notes. Here are some thoughts to ponder.

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BawldGuy Talking

After extensive search, brokerage decides to stay put

Financial District – Full-service brokerage firm Wellington Shields & Co. has tacked another decade onto its lease for 18,579 square feet at 140 Broadway, between Liberty and Cedar streets. The…

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Real Estate Deal Watch – Crain’s New York Business

What can you do to add value to your home before you sell?

Every home owner has some vision for the property he/she has, but in most of the cases, they do not know exactly how to invest economically in them. Before selling any property, there have to be some renovations that add value to the house which you wish to sell. The spring season is the ideal time to begin the renovating ventures. It is the best weather to go ahead with the job. If you are looking to buy property e.g. buying houses for sale in Birmingham from expert estate agents then you may hope that the previous owners have completed the following steps;

You can make your choices for remodelling of your house which also suit your pocket. The fundamental goal of a prudent homeowner is to spend every bit of money wisely in the venture of remodelling the house. Whether the remodelling involves painting a room, adding another storey or renovating the kitchen or the washroom, you must ensure to make intelligent moves and there is a lot that can be done before selling the house in order to make it give you a better bargain.

You must make your own decisions. The first and foremost decision that you need to make is whether the job requires a contractor or not. This also depends on how much money you can shell out, how much time is there on your hands and what are the changes that you wish to incorporate in the house. If there is even a slight doubt that you, yourself will be unable to take on the task, then it is best to employ a contractor. It may involve money, but you will get something that is an attraction for the potential buyers.

Go for the process of renovation one by one. You must not attempt to do a big task at once. You must start with the smaller projects first. These will be the things that you may be able to do on your own like fixing new lights and painting. Then you can go to the projects that require more work like major systems or new windows etc. Finally, turn to the final touches and the cosmetic and beautification part.

It is best to make use of the standard materials and simple designs. Granite and wood are always the best to use and durable too. You must also try and use inexpensive fixtures for most part of the house. The other systems that require some proper renovations should be identified and then the budget for working on them could be decided.

Lastly, there is a need to cushion your budget. This is because, when you start with the process of renovation, there may be some surprises for you. You may start renovating a part and then realize that another part needs to be worked on. So, you must reserve 15% over and above your budget in case there is some extra work that is required to be undertaken. This is most necessary in case you hire a contractor. Don't forget the legal fees as I'm sure every estate agent in the UK will add.

The key lies in having a good knowledge of what you wish to do in your home and what it will cost you. You must investigate and determine what are the stages involved in the changes that you wish to make and how much is the total estimate of the expenditures. Utilize your knowledge to your benefit and ensure to make prudent choices for your home.