1st Quarter Newsletter

As we enter the second quarter of 2024, we are pleased to share some highlights and observations from the first three months of the year which included increased lending and investment sales activity despite an unexpected sharp rise in the 10-year US Treasury rate. With favorable inflation data throughout 2023 and six months having passed since the last federal rate hike in July, by year-end 2023 market sentiment had become not if but when the Fed would begin cutting rates. After peaking at 5% mid-October last year, the 10-year UST yield had declined to 3.87% at year-end and fed funds futures contracts then predicted about 150 basis points in rate cuts for this year. Many market pundits and market participants expected a rate cut in March and some expected as many as six rate cuts for 2024. Fast forward three months and the 10-year UST yield had risen over 50 basis points to 4.42% and fed funds futures contracts expectations for rate cuts for the year had declined to around only 60 basis points. Following the April 10th CPI data, the 10-year UST was trading at 4.58%, and now some are questioning whether there will be rate cuts in 2024.  Significant Q1 commodity price increases (the S&P GSCI Index advanced 12%) have been making recent headlines and may also prolong the Fed’s “higher for longer” rates stance.

Despite the unexpected increase in US Treasury rates and bank lenders effectively being out of the market except for their best clients, Medalist Capital closed 18 deals totaling over $250 million during the first quarter. Multifamily led the way, comprising just over 50% of the volume, industrial and retail each contributed about 22.5%, and hospitality accounted for 5%. The loans were closed with ten different lenders consisting of nine life insurance companies and one bank, and about 55% were acquisition loans and 45% were refi’s. While construction financing remains scarce and relatively expensive where available, we are working on several construction loan requests and are confident in securing financing for viable projects.

Although predicting interest rates is challenging, we maintain an optimistic outlook for the commercial real estate (CRE) industry for the remainder of the year. We are sensitive to the fact that prior to the recent Fed tightening cycle many projects were financed at significantly lower rates, potentially necessitating cash-in refinancing or sponsor sales and we expect to remain busy advising our clients in that regard.

Since its founding 20 years ago, Medalist Capital has been life company centric. In fact, we are correspondent for more than 30 life companies, and life company loans historically account for 60% or more of our volume. Having heard the sponsor demand for shorter-term money over the past couple of years, many life companies can offer loans as short as three years and some offer flexible prepayment options. Especially now with banks focusing on gathering deposits and taking care of only their best customers, we encourage you to contact your Medalist Capital loan producer for current life company loan rates and terms. Life companies have also become good bridge lenders with fixed rates in the 7-8% area, making them extremely competitive compared to the higher rate alternatives. Apart from bridge situations, a 1.25x DSCR on in-place NOI is a good rule of thumb when estimating loan size, and current fixed loan rates are about 6-6.50% (assuming a 4.40% UST10).

We deeply value your trust in Medalist Capital. With a team engaged in ongoing dialogue with over 200 lenders, a seasoned specialist dedicated to sourcing equity for our clients, and an investment sales team advising clients on buy-sale-hold decisions, we're committed to providing expertise and customized solutions across every product type. Please stay tuned for further updates from our team as we continue to serve our customers, expand our reach, and grow our business.

Clyde Nelson

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