Capital Markets: CPACE
Between a Rock and a CPACE: Financing Alternative Gaining Attention
The 10-Year Treasury sits in the upper-3 percent range, with one-month Term SOFR in the low-5 percent zone. The cheapest interest rates for new origination are almost 6 percent, with max leverage agency debt constantly pricing north of that for non-mission executions. CMBS debt for riskier property types, such as office and hospitality, is often in the 7.0 percent to 8.0 percent band or more. Inflation has yet to be fully curtailed, and the Federal Reserve has not yet formally announced an end to raising rates although they did not hike in June. Borrowers are ravenous for cheaper debt solutions as lending market liquidity continues to dwindle, forcing spreads higher and leverage levels lower from the active debt funds and banks that still have allocation. Bank allocation has been challenging with a severe lack of payoffs, as borrowers continue to extend and have little motivation to refinance because of the challenging rate environment. Banks are trying to shore up their balance sheets as they lose depositors, given higher yielding alternative options for placing capital and recent regional bank failures.