Springing interest rate caps require commercial real estate (CRE) borrowers to purchase an interest rate cap once the floating-rate index on a loan reaches or exceeds a certain value. Typically, the loan documents will specify whether your loan is subject to a springing rate cap. If required, the springing rate cap must be purchased post-closing […]
Rising interest rates are at the core of many commercial real estate (CRE) conversations today. As the Fed prepares to meet again this month, there is speculation that interest rates will rise another 75 basis points. Until the Fed discontinues its increase in the treasury, there will continue to be discussion around the ongoing impacts […]
What is SOFR? SOFR is based on overnight transactions in the U.S. dollar Treasury repurchase market (Repo). It is the largest rates market at a given maturity in the world, averaging roughly $1 trillion of transactions every day. SOFR measures the cost of borrowing cash overnight collateralized by Treasury securities. SOFR is a risk-free rate […]
In July 2022, CMBS 2.0+ loans special servicing rate is 4.5%, down from 8% one year ago and 6.3% in January 2022. The defeasance of these newer vintage CMBS loans highlights hidden Borrower risk, in the area of defeasance portfolio structuring and pricing. Borrower exposure to securities portfolio markup grows exponentially with 2.0 loans due […]
Defeasance consulting is a specialized service and relationship that lasts beyond the closing of the defeasance transaction. Choosing a defeasance consultant is an important step that is often overlooked or pushed off to a third-party broker or servicer whose interests may not be directly aligned with the Borrower. Not all consultants are created equal, so […]
The commercial real estate (CRE) market has been aware of the London Interbank Offered Rate (LIBOR) retirement since 2015, three years after a LIBOR price-manipulation scandal soured regulators on the interest rate and led them to push for a replacement. As a result, the Alternative Reference Rates Committee (AARC) assembled in 2017 to select the […]
Interest rates are on the rise, a trend that is anticipated to continue through 2022 and well into 2023. In June 2022, the Federal Reserve, the nation’s central banking system, increased interest rates (for the second time in a row) by 75 basis points to a target range of 2.25% to 2.5%. When the Federal […]
The transition from London Interbank Offered Rate (LIBOR) to Secured Overnight Financing Rate (SOFR) has led to major changes in the pricing of global financial products. Although LIBOR will continue to be published until June 30, 2023, major banks are encouraged to no longer issue new LIBOR-based loans as of December 31, 2021. While there […]
The transition from LIBOR to SOFR affects commercial real estate because many CRE loans have LIBOR-based interest rates. With LIBOR tied to more than $350 trillion of contracts globally and nearly $200 trillion of US dollar contracts, this is one of the biggest and most significant events in the history of financial markets. And it’s […]
An interest rate cap protects borrowers against rising interest rates. Although the borrower pays an up-front premium, a properly structured interest rate cap usually benefits the borrower over the term of the loan. With an interest rate cap, the borrower effectively locks in a maximum rate, while retaining the opportunity for reduced or falling rates. […]
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