When Will Rising Interest Rates Impact Investment Decisions?

When Will Rising Interest Rates Impact Investment Decisions?

1 year ago 0 0 933

Here’s my response to the recent Globe St. article, “When Will Rising Interest Rates Impact Investment Decisions?” based on an interview with Real Capital Markets’ COO Tina Lichens. Interest rates are still low by historical standards. With so much capital continuing to search for opportunities, I see little impact on investment decisions for the short term. I do agree that good opportunities will outweigh a higher cost for debt in the long run. That being said, rising rates will have a greater impact on the small private investor (syndicator) who is organizing his capital for every deal and is more return-sensitive.

Borrowing to Invest in Real Estate? Lend Your Ears First

3 years ago 0 0 1500

According to an April report from industry giant CBRE, global investors poured $835 billion into real estate in 2014, and they show no sign of slowing down any time soon. What relevance do global trends like this have on individual private investors? The answer is that, when so much money is chasing a single asset class, prices inevitably rise, making competition for assets fierce and the pressure to generate strong returns that much more intense. This usually results in aggressive borrowing. In market conditions like this, debt financing can be a powerful tool to for investors, especially when interest rates—the cost of debt—are historically low. As any homeowner knows, borrowing increases purchasing power. It can also limit the number of partners needed for a deal, keeping things nimbler. And, as long as the rate of return is higher than the interest rate on the debt, it gives investors a greater

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Four questions you must ask your deal sponsor – and one for yourself

3 years ago 0 0 1413

In the world of private real estate investing, it’s important to KNOW the sponsor. That individual or group will determine if the deal being considered will be good for you. Ask these four questions of any deal sponsor with whom you are considering investing. Then ask yourself the last one. “What is your track record?” A deal sponsor may claim success with his or her last few investments, but what does the long-term track record actually look like? Have there been failures and what were the circumstances? Has there been consistency in the profile of the properties purchased? Or are they just chasing what’s hot? “What is your proclivity for borrowing?” Deal risk stems from several areas, one of which is the extent of the financing. High loan to cost ratio, short-term loans, and high interest rates raise the risk substantially. Aggressive terms can boost returns, but jeopardize the deal

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Loans mature, but cost basis is forever.

3 years ago 0 0 1493

In the last 24 months, we have seen the demand for real estate investments increase dramatically. Investors can’t get decent returns on “safe” or “core” investments, which makes 5-7 percent unleveraged returns on real estate quite appealing. Fund promoters and private sponsors of these deals increasingly are able to “juice” the returns by utilizing cheap debt. This trend becomes more pronounced as lenders competing for deals become more aggressive, which enables property purchases at higher prices while maintaining returns on equity. While there is a school of thought that we are in a stable, long-term low interest rate and low return (by historical standards) environment, investors should pay close attention to how returns on any individual opportunity are generated. A good real estate deal can be jeopardized by a sponsor’s willingness to borrow aggressively to “win” a deal at a price that is too high. Remember: Loans mature, but cost

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