The capital markets are the biggest wild card of the group. A few weeks ago, it looks like we finally had a clear path towards stability. But then we received a better than expected jobs report, the Fed chair signaled further aggressive rate hikes, and the 16th largest bank in the United States collapsed. On one hand, you have folks saying that things could get worse. But others are saying that these banks are largely focused on crypto and tech industries. So commercial real estate should be just fine, and the Fed might even slow down these rate hikes. Please keep in mind that this is an incredibly fluid situation that is literally changing by the day. But this is what we are hearing as of mid-March.
The good news is deals are still getting done. Now, one could argue that the uncertainty we are seeing will lead to more conservative lending practices and a flight to safety. But fortunately, especially in the commercial real estate world, you really can't get more reliable than self-storage as an asset class, and the major Texas metros specifically. But I think the biggest thing to emphasize as it relates to the capital markets is that it just varies so drastically from deal to deal and borrower to borrower. With lenders being a lot more picky today than they were 9 to 12 months ago, we're not only seeing higher interest rates, but also lower leverage being offered, so buyers are having to come to the table with more equity. While they were used to seeing 75% even 80% leverage, now we're seeing banks offer something closer to 60-65% on most deals. Some lenders, such as CMBS, life insurance companies and a handful of banks are using the five or ten year Treasury as their baseline.
So, they're still offering rates in the 6% range. The majority of local and regional banks, however, are going off of the Wall Street Journal Prime, and that's where you're seeing these rates in the 8% plus range. With all this uncertainty, though, it is more important than ever to have a trusted advisor to help guide you through these choppy waters.
So we invite you to reach out to us and our partners at Marcus and Millichap Capital Corporation to stay up to date.