Distant events impacting senior housing borrowing costs.

If in the current cycle you somehow managed to underestimate the impact of economic globalization on America's capital markets, don't be too hard on yourself.

"It's becoming increasingly more difficult to sift the evidence and isolate clues that can effectively explain developments in today's more broadly-gauged global economy," says senior housing/ healthcare funding specialist Jeffrey A. Davis.

Davis i fFounder anc Chairman of Cambridge Realty Capital Companies, one of the nation's leading senior housing/healthcare lenders, with more than $1.75 billion in 275 closed transactions since the mid-1990s. He points out that borrowing costs are a major concern to senior housing/healthcare borrowers "because operating margins typically leave them little room to maneuver.

"Although they aren't complaining, what hasn't made much sense to healthcare borrowers is how long-term interest rates have managed to resist persistent efforts by the Federal Reserve Board to use monetary policy initiatives to nudge rates higher across the board. Nor is it clear how long the current situation might last," he said.

Davis points out that a number of observers have expressed surprise that an inverted yield curve between long- and short-term interest rates would develop in the capital markets at a time when the economy did not appear to be in any immediate danger of tanking. Past experience suggests this particular phenomenon is more likely to occur during an economic downturn.

As the inverted yield curve between short- and long-term rates widened, some experts referred to this development an aberration. And former Federal Reserve Board Chairman Alan Greenspan was calling it a "conundrum," Davis observes.

However, as a private citizen speaking at a conference organized by a financial services firm, the formidable former head of the central bank provided some fresh insights. What Greenspan is saying now is that the flood of new workers into the world economy after the collapse of communism and the global integration of China are the most significant factors currently impacting long-term interest rates in the U.S., Davis said.

"Apparently, these global factors helped push down long-term rates and fueled a U.S. housing boom earlier in this decade. However, because these global developments are one-time events, former Chairman Greenspan doesn't expect them to become 'a permanent feature of the economic landscape.'

"What he stressed is that there will be a turning point in time when these factors no longer affect our capital markets in the same way. But he's unable to predict when this might be," Davis said, adding: "The message senior housing/healthcare borrowers can glean from all this is that unanticipated international developments have conspired to create the attractive interest rate scenario that currently exists. How long borrowers will be able to count on this condition remaining in place, however, is anybody's guess.

"Presumably, the dynamics can change rather quickly with the ebb and flow of events occurring far from home," he added.

Davis points out that in early November, the prime interest rate was unchanged at 8.25 %t over the previous month, while yields on 10-year U.S. Treasuries were up slightly, from 4.60 percent to 4.77 percent in early November. However, by early December, rates for these securities had dropped to 4.4%.