The debt markets have changed significantly since the Fed began raising interest rates in early 2022. As a mortgage broker, I’ve seen deals repriced, paused and/or die as a result. Still, we continue to close loans by embracing a strategic perspective that fits the current environment.
The best financing execution is one that focuses on future goals and what can be controlled by the borrower.
A case study will help illustrate this. We recently closed a loan fitting the following profile:
- Strong historical cash flow
- Low leverage
- Tertiary market
The borrower’s ask was as follows:
- Low-interest rate
- Flexible prepayment
- Max cash out
- Non-recourse
- Interest only
The resulting loan met most objectives. I focused on sub-6% rate, open prepayment, cash out. We closed a loan that included recourse and featured less interest only than we requested.
Could we have gotten non-recourse elsewhere? Sure, CMBS loans are non-recourse by nature. However, in dissecting what it actually did for this borrower, it was decidedly less important than other loan features; namely a significant interest rate premium.
Instead, we locked an interest rate well below anything else we were quoted, with open prepayment and significant cash-out. We can’t control future rate movement; but with open prepayment, the borrower can refinance quickly and without penalty if rates drop. The interest only period was brief but hit a sweet spot without impacting pricing. By being thoughtful about what was most important now and going forward, we pulled together a market leading execution.
Contact:
Adam Karnes is Vice President of The BSC Group, where he specializes in financing commercial property types nationwide, with an emphasis on self-storage assets. Adam is based in Wisconsin and can be reached at 262.527.0528; e-mail akarnes@thebscgroup.com
