What Caused Those Haywire Capital Markets?

A disruption in the capital markets last week means widening interest rates. It’s why we think it's timely to host our DFW Capital Markets Summit on Aug. 27. And you can join us.

Goldman Sachs real estate financing group southwest region director Nick Losada (with 14-month-old son, Liam) tells us the disruption in the CMBS market was triggered by low all-in buy yields and (to an extent) geopolitical issues in Russia and the Middle East. Nick says the Russian build-up of troops along the Ukraine border and the Israel/Palestine clash are causing hesitations in the market. Domestically, the relatively low Treasury yields are a result of current policy, a strengthening US economy, and a flight to quality internationally. The result, however, could be a larger pull back from the Fed, meaning long-term borrowing rates to potentially raise. (We feel like we should call him Professor Losada now.)

Investors want bigger yields, so the slight adjustment creates all-in interest rates to go wider, he says. There’s a pullback on the somewhat aggressive trajectory of the last few months in which the benchmark AAAs were down to 71 bps and have widened to about 85 bps and potentially wider this week, he says. Nick hasn't seen any fundamentals change. The yields were getting too tight to invest in commercial real estate bonds. Investors wanting higher yields means rates get pushed to what lenders (like GS) can provide borrowers, Nick tells us. While interest rates are slightly higher, he says it’s more a slight reset as the outlook still appears strong.

CMBS has attractive interest rates for clients that may not be able to find other traditional lenders. Nick (far left at Bisnow Houston’s 2014 capital markets event this year) says owners can use CMBS to finance and execute on investment plans with higher leverage, especially if their financials are strong. Learn more from Nick and our panel of all-stars at our DFW Capital Markets Summit, Wednesday, Aug. 27.