September again shows difficulty of predicting rates

Predicting the direction of commercial mortgage rates is a bit like judging the direction of airflow inside a car where all the windows are randomly going up and down.

There are times when it is easier to predict than others, but rarely is there a moment when it is scientific.

In general, when investors are pessimistic about the economy, rates head lower. The inverse relationship is also generally true: When investors are upbeat or optimistic about the economy, rates head upward.

Grasping investor sentiment on any given day becomes the basis for predicting the future. Hardly scientific!

September has illustrated this quite well. As the first September economic reports came in, investor sentiment was that the economy was roaring back, and commercial mortgage rates headed higher. This had many borrowers reaching for big bottles of Maalox.

But, acting like some sort of economic antacid, employment numbers came out Sept. 5 and curbed investor enthusiasm, allowing rates to head back down. As a result, commercial mortgage rates moved very little since last month and now range from 5.25 percent to 6.05 percent for fiveand 10-year mortgages, according to the Barron's/John B. Levy & Company National Survey.

Although the end of August brought a virtual halt to the commercial mortgage world, lost time was made up quickly during the first few weeks of September, and $8 billion to $9 billion of CMBS (commercial mortgage-backed securities) volume is currently planned for the month.

This is a typical phenomenon in the mortgage banking industry: Investors and brokers return from August vacations with more focus. They realize that deals not currently on the schedule aren't going to close this year. Since transactions pushed off into next year don't get reflected in year-end bonuses, September becomes crunch time.

September also represents the beginning of the four-month sprint toward the holiday season that makes or breaks the year for many retailers.

Of course, the developers of Short Pump Town Center and Stony Point Fashion Park are well-aware of this and are making the most of their respective grand openings.

Short Pump Town Center opened first and brought some 150,000 visits in the first four days. This is almost unbelievable and probably not attainable for Stony Point Fashion Park when it opens this week.

Although it seems that there is almost too much talk regarding the two malls, it's hard to underestimate the impact these two grand openings will have on Richmond. The influences vary from real to sublime, but in short, it's all good.

The real current economic impact is with jobs. About 6,000 positions are being created. The new jobs undoubtedly will lead to more people living in apartments where they don't have to share bathrooms and to more spending on consumer goods.

On the sublime side, we are now a Nordstrom-anchored town. This means something to some people.The intangible is that more businesses will see Richmond as desirable because we have decent retailers. Although it's doubtful anyone is constructing a speculative office building for the new businesses that will come to town, 6,000 more people with jobs is positive anyway you look at it.

Andrew Little is an investment banker with John B. Levy & Co.

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