Patrick S. Minea, executive vice president/regional managing director, recently authored an article titled “Forward Commitments: Transaction in a Rising Interest Rate Environment that was featured in the Outlook: 2018 section of National Real Estate Investor. In the article, Minea notes how the uncertainty surrounding where interest rates are headed can significantly affect borrowers in the commercial real estate industry. In the last 90 days, the 10-year treasury has wavered between 2.05 percent and 2.45 percent. Closing a loan that is 40 basis points higher than when the application was signed erodes a borrower’s expected cash flow and ROI and may change the “out-of-pocket” capital required to close the transaction.
Whether borrowers are in the midst of a transaction or looking to refinance an asset in the next 24 months, hedging against the uncertainty has some appeal. Locking in a forward commitment from the lender is one option, but borrowers need to evaluate their risk tolerance and decide if minimizing risk is worth the cost. Real the full story as it appeared in NREI here.