Feedback from the Capital Markets

By Nate Ricks

PCC has officially closed on The Allure, a 268-unit community in San Antonio, TX

The whole team at Platte Canyon Capital is very excited about the recent closing of Allure (268 units) in San Antonio. The equity for this deal was not easy to raise; we faced a highly uncertain market, exacerbated by the ongoing tariff roller coaster. However, the market seems to be making a shift that spells good news for the industry.

Since we began raising capital for this deal back in March, we have noticed two things. First, the debt market continues to be eager to deploy capital. This was evidenced by the positive reaction we received after taking this deal out to the broader market. We received significant immediate interest and were able to push for terms that would have been difficult to achieve 12 months ago. Second, the equity “herd mentality” of the 1990s, 2000s, and newer vintages seems to be slowly shifting.

We have a lot of conviction around 1980s products right now. When we took Allure (a 1984/2017 vintage) to market, we expected many groups to view it as a 2017 deal with an 80s component. We learned that almost everyone viewed it as an 80s deal with a 2017 component. This made raising equity challenging, but through the process, we noticed that more groups were open to the vintage, whereas six months ago, it would have been an immediate “pass.” We also learned that equity interested in this vintage is targeting a minimum yield-on-cost of +8%.

Debt Markets

The Federal Reserve is locked in on a “wait and see” approach, and the debt markets continue to be frothy as lenders are eager to deploy capital. We saw evidence of this in the first quarter and continue to see it today. Tariffs have been a central driver of current market behavior, adding a layer of uncertainty to inflation forecasts and, consequently, monetary policy. While the Fed is holding rates steady for now, they are closely reassessing the economic data, with many analysts watching for their September meeting for any potential shifts.

This cautious yet accommodative stance from lenders is reflected in recent pricing. The U.S. 10-year Treasury yield has recently climbed above 4.4%, its highest point since mid-June, reflecting ongoing concerns about inflation and the potential for delayed rate cuts. Despite the uncertainty, we have seen attractive debt fund pricing, with recent quotes at SOFR + 290 and 5-Year Treasury + 150 basis points on agency debt. This indicates that despite the macroeconomic uncertainties, liquidity remains strong in the debt space for well-structured deals.

The current market presents a landscape of cautious optimism. While macroeconomic headwinds, particularly from tariffs, continue to create uncertainty, the capital markets are showing signs of favorable shifts for discerning investors. The eagerness of debt providers to deploy capital, coupled with a potential broadening of equity appetite for older vintage, creates a compelling opportunity for value-add projects like Allure. By focusing on fundamentally strong assets and leveraging the available liquidity in the debt markets, we believe there is a clear path to navigate the present uncertainty and deliver strong returns. The key will be to remain disciplined in our underwriting to capitalize on these evolving market dynamics.