CRE Investor Looking To Lock In Rates? The Time Is Now

CRE Capital Markets Report With Thirty Capital

For commercial real estate (CRE) investors looking to lock in rates, the time is now.

Thirty Capital Analyst Bryan Kern foresees the market being range-bound for up to the next four weeks—at least until the Feds start tapering.

“If you’re looking at forward exposure, I like 18-months to 24 months forward for six and seven-year tenors,” says Bryan.

“I think we're going to see two things. I think we're going to see rates go up, but the Fed's not going to mess with the short end of the curve for a while. So we're going to see the yield curve steepen. We've even got some clients that are looking at four-year forward two-year (swaps).”

Bryan and Thirty Capital CEO Rob Finlay discuss borrowing examples that they are currently recommending to clients, along with attractive offers from banks.

Why So Much Focus On The Short And Long Curve?

Some listeners have asked why Thirty Capital’s CRE Capital Markets Report discusses the short and long curve so much, and who cares about the Ten-year? After all, the Fed is controlling both the short end and the long-term curve, so it’s pegged.

Bryan agrees that the Fed does buy across the curve, so to some extent they do manage the long end.

However, he adds that the Treasury market is a big one, and it’s not just the Feds who are buying. And that’s why the show focuses on this issue.

Feds Interfering In Open Market

Right now though, at this point in time, all eyes are on the Fed as they are essentially in control of the Ten-year.

“They can pretty much do what they want with it,” says Bryan. That’s why tapering is such a big issue right now. The question is, when do the Feds stop buying?

“When do they stop what I consider interfering in the open markets? The big thing is that at next week’s meeting (will) they mention taper? There's a lot of people who are pressuring the Fed to actually implement the taper this year and finish it pretty quickly . . . some are saying by June of next year, which would be a really quick timeline.”

Rob added that The Wall Street Journal reports that tapering will begin in November.

The Feds will likely begin dialing back spending at that time and reduce their buying, so that over time they will no longer be the biggest buyer in the market. This could result in a two percent rate by year-end, although Bryan’s prediction is closer to the 1.75 to 1.80 range.

Economy Rebounding, But Job Numbers Low

Last week Bryan said numerous people have posed the question: what impact do Treasury and mortgage purchases have on employment? The answer is “None”.

Bryan says there’s nothing that the Feds are doing with Treasury and mortgages that’s affecting employment. “The economy has rebounded significantly and inflation, transitory or not, is extremely high.”

Rob observes that the jobs market isn't as robust as people assume.

“The thing is that small businesses can’t find people. I haven't seen this in a long time where you drive down the street and there are big signs saying: ‘We have work’ or ‘Help wanted’.

Bryan added the August job numbers were much lower than expected. The economy was anticipating 700,000 new jobs, but only produced around 200,000. There was some slight wage growth.

Listen to the full episode for all the detailed discussion.