It’s not for everyone, we admit. But for those astute enough, aggressive enough, and pre-disposed to the commensurate high rewards, the effort is worthwhile.
Case in point:
We recently closed a $3.8m loan for an investor/developer to construct a retail center in the west valley. (A construction loan in this economy? And a retail project at that? Yes, and yes!) The construction portion was done as a variable rate at Prime with an 18-month construction period. Upon completion, the loan rolled to a 10-year permanent loan at the FHLB rate +2.5% with a 25-year amortization period.
The U.S. Treasury is a Competitive Borrower
If you’re looking for CRE money, and think you’ve heard the first bugle call at the beginning of a horse race, you have! Now that the debt ceiling problem is fixed (extended once again – temporarily!) the Treasury Dept. has begun the quest for cash, which means the ready-and-waiting cash will race to where everyone can win, and probably in good terms.
CRE borrowers? It’s another painful shin kick that will make rates even higher now, if the cash is even available.
For all the dry powder money investors have side-lined waiting to see how inflation, interest rate hikes, geopolitical conflict, supply chain thrashing, quantitative tightening, and labor markets pan out, there is only so much cash available at any given time.
But now, because the federal government has bills to pay and needs money to do so, worries about a currency-printing stoked wave of inflation are over-ridden … the Treasury has to borrow. As the resolution over the debt ceiling extended until the bill passed and President Biden signed it last Saturday, June 3, the Treasury has not been able to issue the additional bonds it needed to sell. There is now a great deal of commerce the Dept. must do – time to catch up.
Although official auction announcements are just now forthcoming, rumors in the press suggest something over of $700 billion will be the first round; some say it could be as high as $1 trillion by the end of September.
How this comes into play for CRE is because investment funds are not unlimited, and interest rates for shorter terms Treasurys are attractive. A batch of 2-year notes issued on May 31 carried an interest rate of 4.25%. The 26-week bills issuing this week are looking at 5.48%. This is virtually guaranteed money which will set off two dynamics.
The first is that a lot of investors will pull cash from banks to invest in Treasurys leaving those banks even more starved for deposits. Banks which have hunkered down with higher CRE loan rates and lower LTVs, will have even less money available.
The second dynamic is that short-term bills will drive up short-term loan rates as lenders need to make more than Treasury rates to justify risk. Typically, credit spreads can be expected to widen.
There could be a third issue for CRE as reported in the Financial Times … banks might sell property loans at a discount. Many banks already feel pressure from CRE loan exposure, as reported by GlobeSt.com last week. Unloading at losses would likely push down property values and make further financing even harder to get. You can anticipate acquisition opportunities here.
Ready … Set … Go. Call Counsel Mortgage! We work for you, not the lender.