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  • Mark Scott, Commercial Mortgage Capital.

Treasury rate rise. Too much too fast?

The recent run up in 10 year rates from the lower end of the 2-3% range to the upper range (now about 2.85%) occurred fast. The rapid increase in rates have been fueled by expectations of organic and tax reform inspired growth. This growth, it is feared, will move inflation to 2% (The Federal Reserves indicated target) or higher. Higher rates and rapid change make the phones ring at Mortgage Banking offices….. I recently returned from the Mortgage Bankers CREF convention in San Diego. Attended by over 7,000 lenders and brokers the mood was positive yet not jubilant as rates have been on the rise.The current rapid rate increases have generated a return to discussions of Construction Permanent Loan Products. Several Life and now banks are offering to provide 24 month construction loans combined with a 10, 20, 30 or even 40 year fixed rate loan product. Thus, at Application, the rate can be locked for up to 12, 22, 32 or 42 years. Often lenders will allow additional proceeds to be funded as the properties cash flow increase over time. ”Another Bite at the Apple” as many borrowers call it.

Although easing of the cash equity required of borrowers by HVCRE banking regulations are on their way, Life Companies today can give borrowers credit for appreciated Land Values contributed as equity. This recognition of current land value and the ability to lock rate through construction into a permanent loan warrants investigation by those (all) developers with a fear of higher interest rates. Volatility in the capital markets (Rising rates, frequent stock market gyrations) and the ever changing Washington DC environment suggest a review of such loan products prudent. Liquidity remains strong in the financing market.Contact your mortgage banker to protect your new and current properties from future rate increases.

Mark Scott is founder and principal of Commercial Mortgage Capital.

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