CAP RATES VS BOND RATES - Real Estate Forums

CAP RATES VS BOND RATES

? Cap rates have mirrored the movement of the 10-year bond rate with the exception of the "crisis" years (2008 and

2009)

? Spread differential was narrowest in 2007 ? Current spreads are approaching a negative carry situation should "all-in" rates rise

o Headline-driven market can quickly ripple through bond market

9.00%

5.00%

8.00% 7.00%

4.00%

6.00% 5.00%

3.00%

4.00% 3.00%

2.00%

2.00% 1.00%

1.00%

0.00%

0.00%

Source: Bloomberg and Colliers

Montreal Spread

Montreal Cap Rate

10-year Bond

1

HEADLINE-DRIVEN MARKET?

3.50% 3.00% 2.50% 2.00% 1.50% 1.00%

WSJ: "Bernanke: `Step down' in QE could come soon" May 22, 2013

CNN: "Federal Reserve says no taper" Sept 18, 2013

Source: Bloomberg

10-Year Bond Yield

5-Year Bond Yield

CNBC: "Fed to taper bond buying by $10 billion a month" Dec 18, 2013

2

SENIORS' HOUSING PORTFOLIO FINANCING

A CMHC Story: 2009 - 2011

Transaction Overview

? $330 million of CMHC insured loans on 34

retirement and long-term care properties

? 3 lenders with an average interest rate of

approximately 3.5%

Challenges

? Funding differences for multi-jurisdictional portfolio ? Timely underwriting process given the size of the

portfolio

? LTC properties harder to finance in some provinces

A Conventional Approach: Current

Transaction Overview

? $100 million financing on a portfolio of 20 Long-

Term Care facilities located in Ontario (funding Q1 2014)

? Conventional blanket financing with a single lender ? Competitive spread

Challenges

? Self-amortizing loan required due the expiry period

of the licenses on the portfolio

? Limited number of lenders with appetite for Long-

Term Care facilities provinces

3

 ................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download