Do Recent Interest Rates Cuts Portend a Refi Windfall? Maybe Not

Banks, life insurance companies and the GSEs are still quoting deals on a selective basis, although spreads are higher and leverage is lower.

Commercial real estate borrowers who were hoping to capitalize on dramatic Fed rate cuts and a drop in the 10-year Treasury to refinance loans at record low rates may have missed their window of opportunity—at least for now.

Borrowers that were able to move quickly did access some incredibly cheap capital. In some cases, financing rates dipped below 3 percent as interest rates plummeted and spreads remained relatively stable. Yet lenders have since tightened their grip on capital given the market volatility and uncertain outlooks for the economy and commercial real estate properties amid the spread of COVID-19.

The low benchmark rates have been countered with higher spreads and rate floors from many lenders. Rates today are in line with those found in December 2018, generally in the high 3- to low 4-percent range, notes Brian Stoffers, global president, debt & structured finance at CBRE. “Many borrowers are taking a ‘wait and see’ approach and hoping for lower spreads once the market settles down,” he says. Meanwhile, those borrowers with maturing loans or 1031 exchanges that require timely closings are moving forward, he adds.

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