"There is more capital available for debt and equity than we have ever seen," Chris Larkin, vice president of Orlando-based RJ Twitty & Co. II, tells GlobeSt.com. "We are hearing from more lenders, with more aggressive programs, than we ever have before. Life companies, conduits, banks, pension funds and other private sources are very hungry to find new business early in 2004."
Larkin declines to identify the lender on the Hawthorne Groves deal, other than "a Midwestern-based life insurance company seeking lending opportunities throughout Florida and the Southeast." He says the lender noted Hawthorne Groves' "excellent location" with frontage along the East-West Expressway at Good Homes Road in west Orange County.
The mortgage banker says the float-to-fix financing "creates a difference in the fixed rate today of about 3%." He says the 2.72% initial floating rate compares with a similar fixed rate at closing of 5.25%.
In such a deal, the borrower "takes the risk that fixed rates will go up prior to locking in, yet look at all the cash flow the borrower keeps while rates remain low," Larkin says. "It's a great reward for the risk with an ability to lock quickly always on standby."
The Hawthorne Groves loan was made at "a very low-cost" introductory floating rate tied to Libor and amortized over 30 years. The financing may be converted to a fixed-rate permanent loan at any time.
Competition among lenders for all property categories is "very strong," Larkin tells GlobeSt.com. "Since the holidays, we have seen reduced spreads for all commercial property types, ranging from 60 to 160 over Treasuries," he says. Corresponding rates for a 10-year loan are 4.9% to 5.6% with 30-year amortization schedules for most properties. Five-year fixed-rate loans are priced from 4% to 5%. "Floating rate loans can be priced even lower," Larkin tells GlobeSt.com.
Creative programs such as five-year loans with all five years interest only are available. "Some lenders have implemented fix-to-float loans that offer a borrower flexibility at the end of a loan term," Larkin says.
Lenders are scouting for class A, B and C properties "with B and C properties possibly having shorter amortization and slightly higher interest rates," the banker says. "Different lenders compete for the different classes of property.
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