CRE borrowers must look out for rising cap prices as market volatility continues

<span style="font-weight: 400;">The Fed is expected to raise interest rates by a quarter of a basis points (bsp) this week. </span> <p><span style="font-weight: 400;">The futures market is actually expecting about 165 basis points and tightening in 2022. So there are many who think the Fed will go for a .50 bps increase, but Thirty Capital Analyst Bryan Kern says the consensus around .25 is probably right. </span></p> <p><span style="font-weight: 400;">For commercial real estate borrowers, this means more of the same, with high volatility and thinner markets, says Bryan.</span></p> <h1><span style="font-weight: 400;">Commercial real estate borrowers must watch out for cap prices! </span></h1> <p><span style="font-weight: 400;">If you are in the market for hedging products, get regular updates on cap prices, because they are going up due to market volatility.</span></p> <p><span style="font-weight: 400;">Says Thirty Capital Analyst Jay Saunders: “We have a client who did not execute a cap Friday. It’s $10,000 more expensive today than it was Friday.”</span></p> <p><span style="font-weight: 400;">He warns borrowers to really think about strike rates on these gaps. “I know borrowers want leverage. They want low strike rates so they can lever up these projects. </span></p> <p><span style="font-weight: 400;">“But when three-year, two-percent caps cost 65 to 70 basis points per annum you’ve got to start thinking about the math . . . where (the numbers) do and don’t make sense.”</span></p> <h1><span style="font-weight: 400;">Watch out for intraday movement on the markets</span></h1> <p><span style="font-weight: 400;">To add to Jay’s warning, Bryan cautioned commercial real estate borrowers to be vigilant for intraday movement. On interest rate caps there can be a swing between 16 and 17 bps in a matter of minutes. </span></p> <h1><span style="font-weight: 400;">COVID spike could impact supply chain</span></h1> <p><span style="font-weight: 400;">Jay points to the news out of China that COVID cases are at a new high since