12A — September 27 - October 10, 2013 — Fall Preview — Mid Atlantic Real Estate Journal


By Marc Tropp, Eastern Union With the benefit of hindsight, everyone is a critic F inance


Right now a quick glance at the business section of the New York Times will answer any questions you have about the market. The trend is clear: rates are rising. Let the self-bashing commence. It takes very little in the way of ingenuity to look back and see what we all should have done in March. It’s hard not to grimace getting quotes a beat higher than you would have a few months ago, but that doesn’t mean the time to act has passed.

Here’s another thought: forget about the extra point for now and consider the historically low period we are still enjoying. Here’s an uplifting set of num- bers to help the process: 1. In 1997, the 10 year trea- sury rate was at 7 percent. 2. Today’s rate: 2.93 percent. With those numbers in mind, the difference between March and September rates of this year is like the contrast between “buy one get four free” vs. “buy one get three free” at a labor day sale. Compared to how it was, we are still making out like

bandits. Don’t be in the “woulda, shoulda, coulda” mode. But people are still worried. Today, owners are clinging to that under 4 percent rate by tak- ing 3-5 year money. That would be great except for the fact that most of us are in it for the long haul. We can’t exactly pencil in 3-5 years of prosperity and simply hope for the best beyond that. Even though getting very low rates today seems to stop the bleeding, the bloodletting might double when it comes time to refinance. Bottom line: The short termfinancing is only

a good strategy if you plan on selling the asset. Otherwise, it is a shortsighted and harmful solution. At Eastern Union we are seeing a more optimistic trend. As our company president Ira Zlotowitz wrote in a recent blog post, the rising rates have two implications: “Number one is less hesita- tion to invest. The game is up. The Mets are 20 games out of the pennant race. Their chance of winning the World Series is better than the odds of interest rates dropping. Buyers know it, and they’re not waiting around to see how far their projects might fall in the standings. The second piece is less obvi- ous: there are now more banks to choose from. Before the inter- est rate hike we’re experiencing now, bigger banks were able to have pricing that was much cheaper than smaller banks. Bigger banks were like Costco, buying products in such great quantity that they could afford to make less profit on each item. Smaller banks were like the local deli, relying on greater returns for less volume. As the interest rates spiked, however, this disparity shrank.And not only is there more business, but there are more lending sources.” For example, my office re- cently arranged a $15.9 Mil- lion financing for a 322-unit multifamily in Lanham, a deal we wrestled with for a year. The condition of the propertymade it quite difficult to finance since as we had to assure the bank that the client would renovate and stabilize the property within a year. This deal would have been uncloseable were it not for the banks finally starting to play ball and be competitive. In the words of John F. Ken- nedy: “Those who look only to the past or present are certain to miss the future.” Right now, whether you realize it or not, the future is bright. Eastern Union is receiving 350 loan submissions a month and and expects to double its overall business this year. We’re not letting rates do anything ex- cept increase our growth and, with the benefit of hindsight, we know that years from now our clients will be saying the same thing. Marc Tropp is the man- aging director of the Mary- land office of Eastern Union. n

nevitably, I am always asked the same question from my clients when

they need ad- vice: “Where do you think rates are go- inginthenext 12 months?” And my an- swer has al- ways been t h e s ame :

Marc Tropp

“Carpe Diem” my friend!, seize the day, because the numbers you see now will become fic- tional overnight.

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