I have a theory as to what’s driving investment market activity. Debt and leverage are back in a big way. Interest rates are at all-time lows with the favored asset class—multifamily—able to get LIBOR floating interest rates. And leverage is back; lenders are quoting loans with up to 70 percent leverage.
If you have a quality asset at the right price, the debt and equity are more available than they have been for years. The CMBS lenders are gearing up, with loan volumes increasing every month.
My view is that the aggressive lending is driving the market activity and creating an opportunity for buyers and sellers. Buyers are able to lock in great loan terms for up to 10 years. Sellers are bringing assets to market because the low rates and higher leverage is allowing buyers to pay more.
All of this is combining to create the most activity we have seen in Dallas-Fort Worth in years. This window of opportunity could be short-lived, with all the turmoil in the European credit markets creating more and more uncertainty by the day.
If Greece defaults—in my opinion it’s not if but when—it could send a ripple effect through the credit markets and slow down or shut down the current aggressive lending market and, in turn, slow down the investment sales activity and reduce pricing.
The European financial meltdown will spread across the Atlantic to the United States, and slow the market down big time!
My view is if you can buy a good asset and lock in low-cost financing long-term, you should do so soon, because it could go away for a while. The European financial meltdown may close one door—leverage—and open another, with lower values on assets for sale. Looks like opportunity to me one way or another, if you take advantage of what the market gives you.
