Higher Interest Rates
Would a rise in interest rates affect the coming wall of maturities? Tom Fink states that if interest rates were to go up substantially (anywhere from 4 to 6 percent), that would provide an issue for the marketplace in general because of the uncertainty of the volatility. With regard to the loans that are maturing in 2016 and 2017, they are being refinanced at rates that are comparable or lower than they were financed with originally in 2006 and 2007.
Where interest rates are today and where they are probably going to be in 2016 is a “wild card” depending on what happens in the 2016 election. How is the real estate market going to read whatever happens in that election, the overall level of interest rates and the prospects going forward? The fact of the matter is that there’s still a large surplus of capital in the market. People are looking for investment options, and real estate appears to be a safe investment.
Aaron Kaiser: Hello, I'm Aaron Kaiser, partner at EisnerAmper and Co-Chair of our firm's Real Estate Practice. It's my pleasure today to introduce Tom Fink, Senior Vice President and Managing Director of Trepp LLC. Trepp was founded in 1979 and is the leading provider of information analytics and technology to the commercial mortgage back securities, commercial real estate and banking markets. Welcome. How do you feel a rise in interest rates might affect the coming wall of maturities?
Tom Fink: Well, I think interest rates, if they were to go up substantially, and by substantial, I mean take the 10 year treasury from around two, two and a quarter to four or five, six percent.
That would, I think provide an issue for the marketplace in general more because of the uncertainty and the volatility. With regard to the loans that are actually maturing and U.S. In 2016 and 2017 there being refinanced at rates that are comparable or lower than they were financed with originally in 06' and 07', so where interest rates are today and where they are probably going to be in 2016, I think we're going to be okay. I think the real wildcard is what's going to happen with the 2016 election, how is the market going to read, whatever happens in that election and how are they going to make that feel about the overall level of interest rates and the prospects going forward. The fact of the matter is there's still, as I said earlier, a real large surplus of capital in the market. Now you've got people who are looking for investments. Real estate looks to be a safe investment, so I don't see us having any problem of raising the capital necessary of equity and debt to go through the upcoming loan charities. That's what I see today.
Aaron Kaiser: Tom, thank you very much for your insights and thought leadership.
Tom Fink: Aaron, it was my pleasure. I always liked working with you and the folks at EisnerAmper.
Aaron Kaiser: Thank you so much. For more information go to EisnerAmper.com
What role are government-sponsored organizations playing in the real estate market today? Tom Fink stresses that government-sponsored agencies are still very important factors in today’s real estate marketplace.
What is the change in the level of non-performing debt and which way is the trend going? Tom Fink discusses the delinquency severity breakdown, saying “we’ve seen a real decline in the overall level of delinquencies in the market.”
How is the New York metropolitan real estate investment market doing? Tom Fink discusses the tri-state area commercial mortgage-backed security delinquency rates. It shows that New York State is outperforming its cohorts in NJ and PA.
In terms of safety and risk, what trends can be seen in the different lending classes? Tom Fink thinks credit standards have loosened over the last two to three years as more money becomes available and borrowers get better terms and conditions.
After discussing New York, Tom Fink discusses markets around the world from an equity perspective and how there's an awful lot of money is still available for pursuing equity investments in real estates around the globe in terms of debt.
The New York real estate market is doing relatively well. How is New York doing compared to the country as a whole? Tom Fink illustrates by showing the nation sectioned into regions and shows the delinquency rate in each region.
When asked about the important emerging technologies in the marketplace, Tom Fink replies, “I think we still have a long way to go before technology is really a factor in the commercial real estate market space. But, I think it’s still an exciting time”.
Tom Fink discusses the estimated upcoming commercial real estate debt maturities with annual maturities by lender type. The last 3 years have shown a continued erosion of the amount that’s due in 2016 and 2017 as people pre-pay loans.
The real estate industry has made a strong rebound since 2009 – it’s healthy, back on its feet and active. Rates continue to be at a historic low and there is still a huge amount of stimulus outstanding.