Mid Atlantic Real Estate Journal — December 7 - 20, 2012 — 9A


t Ax i ssues /A ccounting By Bruce J. Coin, Bruce Coin Consulting The current commercial mortgage market

lows through the mi dd l e of 2015 lend- ers as well as borrowers ar e a lways contemplat- ing the poten- tial for future interest rate W

ith interest rates at and likely to re- main at all time

a specific calendar date such as the one currently targeting mid-2015. Apparently many FOMC members were of the opinion that adopting a quan- titative threshold could, in the right circumstances, help the Committee more clearly com- municate its thinking (publicly) about how the likely timing of an eventual increase in the fed funds rate (and the Fed’s out- look) would shift in response to unanticipated changes in economic conditions. Their difficulty will be in es- tablishing and agreeing upon a formula as some disagreement

was stated about whether thresholds should be expressed in terms as a specific number, such as the unemployment rate, or in a qualitative descrip- tion. It is possible by their January or February meetings that they will have reached consensus and can announce their decision. This year’s last FOMC meet- ing occurs on December 11-12, too late to be addressed in this issue. With the unemployment rate still hovering around 8.0 percent it is highly likely that the “Fed” will continue purchas- ing mortgage backed securities

and long term treasuries under its Operation Twist (QE III). Intended to reduce and keep long term interest rates low, the policy is working. In other news, Mary Shapiro is stepping down as chairperson of the SEC. She is responsible, among others, for giving an indefinite exemption from the Volker retention provision of the Dodd Frank Act to lenders. As 2013’s CMBS production is estimated to increase by about 20 percent, will her successor be a conservative and try to rein in Wall Street’s activities or be a liberal and re-open the flood

gates? No matter what time of year, such questions needing contemplation and answers always exist. As we head into the New Year, the economy and com- mercial real estate markets are continually improving. Accord- ingly, I wish all participants in the Commercial Mortgage and Real Estate industry a Joyous Holiday Season and a Healthy and, what all current evidence suggests will be, a More Pros- perous New Year. Bruce J. Coin is director of Bruce Coin Consulting, Inc. n

Bruce J. Coin

increases. That probability is impacting income property underwriting and mortgage lender retention decisions. • Is it prudent for a lender to make a long term fixed inter- est rate mortgage at say 4.50 percent and keep it on book or should it sell the mortgage before rates rise and the face value gets discounted? • Should a borrower secure a short term (fixed or floating rate) mortgage and gamble that interest and cap rates are higher when wanting to refinance? • Should a construction lend- er underwrite its estimate of future value upon completion and lease up of a property applying cap rates and debt service coverage ratios based on today’s rates or should it apply higher rates to insulate against potential rate increases that may occur by the time the property seeks replacement financing? Steps now being envisioned by the Federal Reserve, as, if or when implemented, are in- tended to enable all parties to better monitor and anticipate future “Fed” actions. When chairman Bernanke was appointed, he promised to bring more transparency to the Fed’s actions and thinking. He has done that. He introduced a 2 percent inflation goal, he holds press conferences after every other meeting and he publishes the policy maker’s forecasts for economic growth, unemployment and the future path of interest rates. As more transparency, the chairman is proposing to link the “Fed’s” outlook for interest rates to measures of employ- ment and inflation. According to the FOMC’s October meet- ing’s minutes, policy makers “generally favored the use of economic variables” to provide guidance about when they are likely to approve their first in- terest rate increase since 2008. Such measures may replace or supplement their targeting

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