Reprinted from New York Real Estate Journal - September 30, 2002

Commercial Real Estate Finance - Low Rates Keep Interest Up

By: Matthew Classi, Managing Member
GCP Capital Group LLC

No loss of appetite here. Buyers keep gobbling up investment real estate with an insatiable desire to acquire. As the equity pool for real estate investment knows no drought, the overall market continues to forge ahead with no end in sight. The relatively limited supply of "for sale" product coupled with an interest rate environment that has hit lows no one could have predicted, has caused a stabilizing effect in an otherwise tenuous economy.

Up until seven weeks ago, the stock market was unraveling before our very eyes. Investor confidence in corporate morals is now shattered and no one knows the true extent of the fallout associated with all these scandals; yet demand for quality real estate remains unabated. Maybe investors want to control their investment destiny; maybe it's better to make 2-5% returns on equity than to invest in a stock market that has erased 5 years of gains; maybe people just believe in real estate as the best long-term investment.
Regardless of the reason(s), we have now seen 2 consecutive weeks of positive gains for the Dow and declining rates that have resulted in a 4.25% yield on the 10-year U.S. Treasury Note.

Indeed, rates are at historic lows and lender competition to "put out" large pools of mortgage money has created a very favorable environment for borrowers to embrace overpriced property armed with low rate justifications.

Because of intense lending competition, traditional lending institutions have been lowering rates in lock step with declining treasury issues and are getting more creative with non-traditional mortgage terms.
My firm, GCP Capital Group LLC, has always been very active in placing loans with the "bread and butter" local banking community. Having personally tracked this industry for 15 years, I now see an industry much different than the one of just 6 or 7 years ago. Not only has loan production and individual loan size increased dramatically, but I now see lenders, who have not been creative in the past, starting to consider new loan concepts such as "A" Note/"B" Note structures, Libor based loans with floating to fix options and higher loan to value ratios exceeding 75% for the right deal and right borrower; unheard of concepts in the savings bank industry.
So as the summer draws to a close, our beloved real estate bull market charges ahead with low rates, high lending competition and not enough well priced product.

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