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Chris Moore explains in the Real Deal how interest rate hikes affect interest rate swaps and caps

December 2, 2022
The Real Deal


The Federal Reserve's hawkish monetary policy has commercial real estate investors hedging billions of dollars worth of debt that threatens to rise with the Fed's interest rate hikes.

“Generally speaking, swaps that were executed earlier in the year are going to be in the money now.”

Chris Moore in The Real Deal

“Generally speaking, swaps that were executed earlier in the year are going to be in the money now,” said Chris Moore of the capital advisory firm Chatham Financial, who added that rates have not been going up in a smooth, predictable fashion. “There’s a great amount of day-over-day volatility.”

Big landlords such as Vornado Realty Trust, Blackstone Group and SL Green started the year with large amounts of variable-rate debt that became a major headache when the Fed declared war on inflation in March and started jacking up interest rates.

The cost of interest-rate caps has grown more than tenfold since the start of the year, and it’s now a significant cost for many players. And with the drumbeat of recession growing louder, a drop in interest rates could turn interest-rate swaps from an asset into a liability.

Our interest rate risk expertise

Interest rate risk can be an important factor in the performance of a single real estate asset or a portfolio of properties. Chatham’s interest rate risk management advisory services offer the expertise and knowledge you need to make informed decisions about the type of debt you use and how you manage the interest rate risk associated with that debt, whether it’s risk on current floating-rate debt, refinance risk on fixed-rate debt, or risk on prepayment penalties.

With Chatham on your side, you can be confident that you’re getting the best possible terms, while maintaining the integrity of your all-important banking relationships. We provide complete guidance on strategy and execution, along with access to tools for monitoring the hedge for the life of the transaction.

Our highly experienced professionals, supported by industry-leading technology, ensure the best pricing, maximize transparency, and offer you insights into market trends.