But Todd F. Cohen, vice president of Primary Capital's local office, gauged recent bond market swings and was able to lock in under-6% loan interest rates for two clients on separate multifamily investment contracts aggregately valued at $11.4 million. The acquisition loans totaled $8.9 million.
For Allen Perri Properties LLC and Perri Allen Properties LLC, Cohen locked in a 5.9% interest rate on an 80% loan-to-value financing from Fannie Mae on the $4-million purchase of the 11-year-old, 95%-occupied Stone Cove I and II apartments in St. Augustine, FL. SE Residential East LLC sold the 86-unit property, one mile from the ocean, for $46,512 per unit. The loan carries a 30-year amortization. Buyer and seller are from New York.
In Largo, on the Gulf of Mexico in west Central Florida, Cohen worked out a 5.9% interest rate with a private lender for Amistef Largo LLC of the Tampa Bay area which paid Cincinatti-based Ambassador of Largo LLC $7.4 million, or $68,055 per unit, for the 108-unit, 17-year-old, 95%-leased Whispering Pines apartment community.
"We did not want to rate-lock these transactions until we had full loan approvals, due to the difficulty with respect to insurance coverage and its effect on loan underwriting," Cohen tells GlobeSt.com. "Over the approximately 45-day period, from loan application to loan approval, the Treasury rates had an approximate 60-basis-point swing, from around 4.6% at loan application down to 4% for a few days, and then back up to near 4.5%."
The broker says he "could have rate-locked sooner at the higher rates, but we were expecting a drop, and got it."
Darrell H. Johnson and Gerald A. Smith of locally based Smith Equities Corp. brokered the Stone Cove transaction. Johnson also handled the Whispering Palms sale.
Cohen says a rate under 6% is "extremely desirable, and it has fueled the acquisition and refinance markets for commercial properties" this year. "This kind of rate puts more cash into owners' pockets. Historically, a rate under 7% is considered pretty good, and the big stock market rally could lead us there, which is why I am advising clients to lock in rates now."
For example, Cohen says "if someone was to buy an apartment complex for $15 million and obtain a loan of around $12 million, the difference of a 6% rate versus a 7% rate would return an additional $100,000 annually to the owner, and he would still owe less at loan maturity."
Cohen's crystal ball shows that over the next 12 months, rates for commercial loans will stabilize at "not much higher than they are now--maybe 50 to 75 basis points higher or a .50% to .75% increase." He says, however, "as we have seen in the past, all it takes is a big sustained stock market rally to lower bond prices and raise Treasury yields."
For that reason, he is telling clients to "lock in prices now, instead of taking the big chance later.
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