A Successful Strategy for “Date the Rate, Marry the Asset” in Commercial Real Estate
Many real estate professionals seeking to make transactions happen commonly throw out the adage “Date the Rate, Marry the Asset”. The concept is solid, in a high interest rate environment, buy an asset when the price is stressed and date the rate (i.e. break up or refinance as soon as a better option presents itself). Long term, this can be a very successful approach to build a portfolio and take advantage of cycles.
One particular and very uncommon loan feature can work very well with this concept. We happen to have a lender in our portfolio of financing sources that offers a fixed rate loan product and affords the borrower the opportunity to revisit the loan rate through a simple loan modification every 12 months after the origination date. The borrower doesn’t take on the additional risk of a traditional adjustable-rate loan (i.e. with interest rate volatility going up and down) but has the flexibility to lower the rate if the environment allows. As we navigate the next few years and rates could likely march downward but take their sweet time getting there, this could be one of the best loan features for a borrower to seek.
Flexible loan features such as this one can enable borrowers to adapt to these market fluctuations by offering an option to lower the rate over time. This flexibility can help borrowers take advantage of the current downturn in the market and not miss a real buying opportunity. The commercial real estate market will undoubtedly continue to be a dynamic and challenging space but those that do their homework, have the right team, and are quick to adapt are the most often rewarded.
