Sue Blumberg, senior vice president and managing director of NorthMarq Capital’s Chicago office, recently shared her thoughts about the impact of today’s interest rate environment on commercial real estate lending.
According to Blumberg, “We are seeing a shift toward long-term planning versus short-term planning from borrowers. Even for properties that are in transition—they are being leased, under construction or in the planning stages—the rise of interest rates could affect them going forward. The plans of the developers and investors could change a bit depending on what happens with rates.”
The following is an excerpt from the Illinois Real Estate Journal article “As interest rates rise, commercial financing enters a new phase.” You can read the full article here.
No one knows yet just what kind of president Donald Trump will be. But one immediate result of his election was a quick rise in interest rates. And that has already brought a change to way developers and investors are borrowing money to fund their commercial real estate developments and acquisitions.
Illinois Real Estate Journal recently spoke with Sue Blumberg, senior vice president and managing director in NorthMarq Capital’s Chicago office, about the steps that developers and investors are taking today to secure the financing for their projects.
Illinois Real Estate Journal: The presidential election is finally over. Have the results brought any – or will they bring any – changes to the commercial lending market in Chicago?
Sue Blumberg: The lending market has shifted a bit with the recent increase in interest rates. We are seeing a shift toward long-term planning versus short-term planning from borrowers. Even for properties that are in transition – they are being leased, under construction or in the planning stages – the rise of interest rates could affect them going forward. The plans of the developers and investors could change a bit depending on what happens with rates. That being said, those borrowers, those developers and investors who are familiar with real estate and who are long-term players, have been through cycles of higher interest rates before. They tend to be prepared for these kind of changes. There is no reason for concern on their part. There’s just more of a need for longer-term planning when rates go up.
IREJ: Were you surprised that interest rates after the election finally rose?
Blumberg: Not really. The way I see it, the rates didn’t rise solely because of the election. People expect there to be actual growth in the future. There has been actual growth in the economy. There has been growth in employment, wages and GDP. It feels like the Fed finally signaling a rise in interest rates is a good thing for the country. It is actually stabilizing. I think rates would have risen even without what happened in the election. It was time for a rise, and that should be thought of as a good thing.
IREJ: What do you look at today when borrowers are coming to you and asking for commercial financing?
Blumberg: Liquidity would be the first thing. Experience is number two. Has that borrower or the key principals been through a cycle before? How did they perform? Were they able to stabilize their projects or make things right when a down cycle hit? Chances are that everyone who comes to us has had a hiccup in their past. It’s how they acted during the hiccup that matters. Most lenders agree that if you did everything you could, acted honestly and forthright, that’s a good sign.
IREJ: What kind of changes are you seeing today in the number and type of financing requests coming your way?
Blumberg: I think construction lending might be curtailed somewhat. It won’t be shut off, by any means. But there will need to be more equity going into the deals that we approve. We generally do business with borrowers who have liquidity and funds and can spot it in times of a trickle or a hiccup. We want to make sure our borrowers have enough skin in the game.
Read the full article online: http://www.rejournals.com/2016/12/02/as-interest-rates-rise-commercial-financing-enters-a-new-phase/