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10 year Bond chart

Economists predict little chance of recession in the short term

Tags: commercial rates
Thursday, May 02, 2019
by Angela Kesselman

The yield on the 10-year Treasury fell below the effective federal funds rate last week, resulting in an inversion of the yield curve.  In the past, a yield curve inversion was thought to be a high predictor of a recession, but several other factors have come into play this time, which leads economists to another conclusion. 

Economists at the major banks believe the inversion will have minimal impact on the sales or debt financing markets. Moreover, yields on the 10-year and two-year Treasury bonds have not inverted.
The 10-year Treasury yield has dropped significantly since November and was below that of the three-month Treasury in the past week (2.39% vs. 2.43% as of March 28), including the following recent movement:

  • Down 86 bps from the high on November 8, 2018 (3.23%).
  • Down 65 bps since January 1, 2019.
  • Down 38 bps since March 1, 2019.

In today’s economy, it is believed that the yield curve would need to invert significantly and remain inverted for weeks, if not months, before it would be a reliable recession signal. The yield curve inverted for at least six consecutive months prior to the past three recessions. Therefore, the probability of a recession remains low.

To predict recessions, the new modeling framework depends on interest rate hikes. At its March meeting, the Federal Open Market Committee (FOMC) changed its monetary policy stance from raising the fed funds rate to a “patient” stance. The market-implied consensus is that the FOMC may not raise rates in 2019 as fed funds futures put a zero probability of a rate hike in 2019 and instead a 76% probability of a rate cut in 2020.

Current changes in underwriting:

Fixed vs. Floating: Short-term rates are expected to fall further and with the lower rates, we are seeing an increased interest in short-term debt.                                                                                                                                                                                                     

Construction:  Some banks have slowed their construction lending due to macroeconomics in the economy.  The rise of non-bank financial institutions will give the market additional liquidity, particularly in the construction sector, rather than from banks than are non-bank financial institutions.

Cap rates:  Remain at all-time lows.

Spreads:  Spreads have remained mainly flat for the past few weeks.  FNMA and FHLMC have seen some tightening.

As a commercial mortgage advisor, I can assist you to find the best loan product to meet your financial goals.  Give me a call or email to discuss your transaction.

Angela Kesselman
Commercial Loan Officer
The Madison Group
435-659-2200

Small Parks Might Be the Next Frontier for Investing

Tuesday, Apr 30, 2019
by Barb
“Mom-and-Pop” Manufactured Home Communities Might Be the Next Frontier for Investment in the Sector

by Sebastian Obando, www.nreionline.com

As institutional players take over larger communities, smaller investors can benefit by looking at communities with under 100 home sites.

Industry experts see plenty of room for growth in the manufactured home communities sector, particularly among the smaller properties.

Often referred to as mobile homes or trailers, manufactured home communities are, in fact, a specific type of factory-built housing, constructed in accordance with the U.S. Department of Housing and Urban Development’s (HUD’s) Manufactured Home Construction and Safety Standards Code. They should be distinguished from RVs, trailers and park-model homes.

Manufactured homes are an important source of affordable housing, particularly for rural and low-income residents, according to experts.  Read More.
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Apartment Loan

Successful Loan Closing: $9MM nonrecourse refinance for Apartment in Utah

Tags: Multifamily Financing, Nonrecourse loan, Apartment Loan
Sunday, Apr 28, 2019
by Jeff Meierhofer
Summary:  The Madison Group (TMG), a leading source of multifamily financing nationwide, arranged the $9,919,200  cash out refinance for an apartment complex in Utah. The borrower’s goal was met by providing a cash out loan with a long term fixed rate. 

TMG sourced the 35 year fixed loan. Special attention was paid to overcoming 3rd party challenges. Additional testing was necessary and the borrowers patience was needed during the government shutdown which caused additional delays. The TMG team, lender, and borrower executed weekly calls and were able to close by the borrowers deadline. The borrower was able to recapitalize and receive cash out for additional projects. As the loan has a fixed rate for 35 year and is assumable, the borrowers have created a long term investment vehicle with excellent cash flow.

Location: Utah 
Property: Apartment Refinance 
Loan Amount: $9,919,200
Interest Rate: 4.30% 
Term: 35-Year 
Amortization: 35-Year
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Student Housing Financing

Recently Closed Loan: $3MM purchase of Student Housing Apartments in Idaho

Tags: student housing financing, apartment loans, Utah, commercial financing
Tuesday, Apr 16, 2019
by Jeff Meierhofer, Director of Finance
Summary:  The Madison Group (TMG), a leading national lending source of multifamily and student housing financing,arranged the $3,039,600  purchase of a student housing  
complex in northern Utah. The borrower’s goals were met in purchasing this value-add 
project and are now taking the time to update and enhance the asset before the fall 
semester.

The borrower had a purchase contract and an appraisal, but was having a 
difficult time finding the lending program that would provide a high enough LTV to 
meet his 25% down payment . TMG had a very short timeline to 
close with the contract expiring within 30 days.  The borrower received a 75% 
LTV loan and closed timely. The aggressive interest rate with no prepayment 
penalty on the loan will allow the borrower to enhance the asset and reposition 
the debt to a nonrecourse loan in the next 12-24 months.

Location: Utah
Property: Student Housing Apartments
Loan Amount: $3,039,600
Interest Rate: 4.49%
Term: 3 Year with a 3 year extension if needed
Amortization:  25 Year 
Prepayment:  None
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MHP Purchase Loan

Recently Closed Loan: $2.8 MM Purchase of a MHP in Arizona

Tags: nonrecourse loan, MHP financing, 1031 exchange, RV Park Financing
Monday, Apr 15, 2019
by Jeff Meierhofer

Summary:  The Madison Group (TMG), a leading national lending source of Mobile Home Park financing nationwide, arranged the $2,845,000  nonrecourse loan for the purchase of an MHP in Arizona.  The asset contained long term RV tenants, park models, and is in a tertiary market. The borrower was on the clock on a 1031 and needed nonrecourse financing to satisfy the needs of the investment group. The loan was finalized than 60 days and before the expiration of the 1031 exchange timeline.

The challenge to the transaction, in addition to the short timing, was the cash flow created by high expenses.  TMG worked with underwriting to work through the expense issue and secured a nonrecourse loan with the proceeds needed to satisfy  the needs of the investors.

Location: Arizona
Property: Mobile Home Community
Loan Amount: $2,845,000
Interest Rate: 4.98%
Term: 12-Year
Amortization: 30-Year
Prepayment:  Yield Maintenance
Recourse - None

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