10/18/2024
The last couple of weeks have been good for commercial real estate interest rates, even if there has been some turbulence. With the .5% interest rate reduction by the FED, the treasury index did not perform as expected. Longer-term treasury rates went up. The good news is some lenders are now trying to price debt with lower spreads to keep active. I am quoting great rates. I recently quoted multifamily under 6 million at 5.27% for a 5-year loan and 5.34% for a 10-year loan. Debt above 6 million could receive rates as low as 5%. Owner-occupied and commercial investment real estate rates are closer to 5.5%. Owner-user borrowers also benefit from low-down payments, typically between 10% and 25%.
Many clients have asked me if they should wait for rates to go down more. This is a tricky question to answer because timing-based decision-making accuracy is difficult to predict in such a turbulent market. When the Fed recently reduced rates by .5%, the 10-year treasury rate went up. If a commercial real estate owner chose to wait until after the federal funds rate dropped, they dealt with higher rates. So why is this happening?
While Fed cuts typically affect short-term rates, the impact on longer-term rates can be different. For example, just before the rate cut on September 17, 2024, the 10-year Treasury rate was 3.6474%. The day after the cut, on September 19, 2024, it increased to 3.7018%, and as of October 1st, it stands higher than before the cut at 3.718%. If you would like to track daily changes to the treasury rates, I have a ticker on my website, Abrcm.com. Feel free to use it as a resource.
Why did this increase happen? The most prominent reason seems to be that the original reduction in the 10-year treasury took place in anticipation of a rate cut. After the cut, investors' perception of the health of the economy and the potential for a rise in inflation pushed Long-term rates up. Investors purchasing treasuries wanted to be compensated for a potentially increased risk of inflation returning. Rates will take time to normalize. A former Fed official, Bill English, notes that these reactions are not uncommon, and the full impact of rate cuts on long-term borrowing costs may take time to materialize.
On a positive note short-term rate reductions are having a positive effect on consumer debt, Commercial real estate and corporate debt based on floating rates.
If you need financing for investment or owner user real estate call me for more proceeds, a lower rate, and the best commercial and multifamily real estate debt available.
