For anyone who is involved in real estate, the year 2022 came in like a lion and went out like a lamb. As has been widely discussed and analyzed, the Federal Reserve’s interest rate hikes in response to inflation has put a dampening effect on investment as the market tries to make heads or tails of underwriting and valuations. For over a decade, the market could rely on predictability, making the job of all of us real estate professionals a little less complicated.
As we enter 2023, the toughest part about our job is unpredictability. To that end, we all have to work a little harder, and we all have to listen a little more to what the market is telling us. But, like any situation which requires hard work and attentiveness, there should be a measure of success for the work, like a pot of gold at the end of a rainbow.
From a real estate debt perspective, interest rates are up, in general, approximately 250-300 basis points from the low in the second half of 2021 into Q1 2022. This obviously has a significant effect on cash flow and, more surreptitiously during refinance, on valuations. Where the debt market used to be fairly consistent, there is now variability in lender quotes, and often this variability is quite wide. Furthermore, while securing a long-term fixed rate was a basic principle during such a low-interest rate period, there is room for nuance and creativity as we look to the yield curves for guidance in our current environment. The good news is that there is still a lender for nearly every type of deal and every property type and the Debt & Structured Finance team at Senné can help find the right capital partner for your transaction.
Lastly, most commercial real estate debt has a 5- or 10-year loan term. It is best to keep an eye on those maturity dates and don’t hesitate to call to discuss anything related to the numbers and spreadsheets.
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