Commercial Real Estate Debt Options in a Rising Rate Environment

In the weeks before the Presidential election the benchmark 10 year U.S. Treasury rate stood at 1.53% and today stands at 2.49 %, nearly a 1.00% move up. In December, the Federal Reserve increased rates by 25 basis points; a move considered by many as long overdue. The Fed’s stated goal of 2-3 increases of 25 bps in 2017 and again in 2018 have many economists predicting the 10-year rate will settle in near 3.50% over the next 15 months. The reported national unemployment rate of 4.7% seems artificially low to many, Austin’s 3.5% notwithstanding. Ted Jones, chief economist at Stewart Title cited a statistic that over 14 million Americans are considered permanently unemployed and are NOT included in the 4.7% number; which if true the national rate exceeds 9%.

As interest rates rise, the same is true of capitalization “Cap” rates and will result in a decline in commercial realty values in all markets including Austin. New Treasury head Jeffrey Mnuchin stated that Government control of Fannie Mae and Freddie Mac will likely remain which could limit multifamily funds. Insurance company mortgage rates today are generally 150-200 basis points over the Treasury rate; resulting in fixed interest rates that remain attractive at 4.00% -to-4.50% on a non-recourse basis for 10 years. These permanent loans are available for acquisitions, cash-out, or refinance of increasing floating rate Bank debt. Loan terms are for 5 to 30 years but LTV ratios remain conservative in the 65-70% range with amortization of 25 to 30 years.

Austin’s commercial markets continue to be viewed as excellent and growing, and one of the Top 3 markets in the U.S. Texas Realty Capital’s sources for funding remain bullish in all market segments.

Please call Texas Realty Capital (512-450-6800) to discuss your financing needs on any commercial real estate project. We will be happy to size up refinancing your project or a pending acquisition and provide you with an array of best in class financing options.