4A — February 9 - 22, 2018 — M id A tlantic
Real Estate Journal
www.marejournal.com
M id A tlantic R eal E state J ournal
By Brenner Green, Real Property Capital, Inc. Interest Rates in 2018
I
n at least 15 of the 21 years I have worked in commercial real estate, a
try seems to be largely acting like the characters in one of those disaster movies (you know the ones with the really good special effects) where the giant asteroid is hurtling toward earth from a million miles away, and all they can do is gleefully wait for the end to come (I will get back to this concept later). I am not say- ing that an asteroid is going to destroy your world, but I am saying that you may soon not have enough debt service coverage to refinance out of your current loan. Rates have been really low
for a really long time. The 10-year treasury rate, which stands at 2.71% as of this writ- ing, has not crossed 3 percent for nearly seven years, but at the rate things have been going for the last few months it would appear to be a pretty sure bet you will see it hap- pen this year. Seven years is a really long time to be living in an artificially low rate en- vironment, and I would wager that just about anyone who was working in this industry seven years ago is a much hap- pier camper today than they were back in 2011 as all this
free money has created good times for all. To provide some perspective on just how low we are talk- ing and to remind everyone of historical norms, I decided to include a chart of the 10-year for the last 54 years. What this chart basically says is that rates fell off a cliff around 15 years ago following the reces- sion that resulted from the tech bubble bursting and have been trending down since. I will let you figure out what the grey bars mean… So where does that leave us now that the party may well
be ending and we are on our way back to economic sobriety? Well, I think anyone willing to take an honest assessment of things would be willing to acknowledge certain indiscre- tions that have occurred as a result of all this free money, and maybe even more so from the “paradigm shift” to a view that free money is the new normal. For some develop- ers, such as those who used a 3.75% permanent rate to make the numbers work in their pro forma two years ago when they were in the planning phase, it’s going to feel like a massive hangover. But the good news is that there is still room for most of us on the last rocket off the earth so to speak. Most economists expect rates to be around 50 basis points higher across the yield curve by year end. That’s half a point! It may be the difference between getting to your loan amount or not, or the difference of tens or hundreds of thousands in ad- ditional interest over the next ten years. You can continue to stare at the asteroid or you can get on the last ship out of town. Your choice. R. Brenner Green is a 19- year veteran in commercial real estate finance and President of Real Prop- erty Capital, Inc., a full ser- vice commercial mortgage banking firm based in the Philadelphia suburbs. n Gladstone joins NAI DiLeo-Bram & Co. as director of capital markets PISCATAWAY, NJ — NAI DiLeo-Bram & Co. announced that Frederick Gladstone has joined the firm as director of capital markets. The hire represents the addi- tion of a commercial lending veteran as the firm continues to grow. Gladstone comes to NAI DiLeo-Bram & Co. with a distinguished career in New Jersey commercial lending. He began his career in 1999 with Commerce Bank where he suc- cessfully completed the Bank’s commercial credit underwrit- ing program. Through-out his career he has been on both the underwriting and sales sides. Most recently he was VP of commercial lending at Berkshire Bank in Kingston. n
ten-year fixed rate with a “ 5 ” hand l e ( m e a n i n g 5.XX%) was a deal that the market would view favorably. At certain points
Brenner Green
in time it would have seemed out of this world good. Speak- ing of out of this world, over the last 12 or so months, the commercial real estate indus-
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