In Bisnow, Robert Mangrelli examines the effect that higher interest rates have on commercial real estate investment
"We're reaching a place in the benchmark interest rates that's causing investors to reconsider some of their return assumptions about the cost of debt financing," said Chatham Financial Managing Director Rob Mangrelli, who works on the firm's real estate hedging and capital markets team. "There's been a rapid repricing."Bisnow
Equity isn't likely to be deterred by higher interest rates, as long as demand and rents are rising.
"There remains something over $150B in dry powder available to private equity investors in real estate, and I'd posit that they're not going to sit on that cash," Mangrelli said. "They're going to put that money to work if they can, and that will provide some level of backstop on activity."
There also remains strong demand for commercial properties from retail investors, such as high net worth individuals, Mangrelli said.
"Some of the large alternative asset managers have clearly shifted their strategies over time, and are looking for some level of inflation protection," Mangrelli said. "Wealth is going to seek asset classes that might perform better in a higher inflation environment."
Interest rate risk management
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.
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