It's clear that we're navigating a new dynamic, albeit challenging, refinancing environment. Yet, within this complexity lies a wealth of opportunity for astute real estate owners. With a spike in interest rates from a mere 3.25% in late 2020 to upwards of 6.6-7% now, the scenario demands not just attention but strategic action if you will be facing refinancing of a commercial property in the next 12 months. According to Yale, "in the next four years, roughly two-thirds of the commercial office real estate will need to be refinanced." That is just one sector but there will be a good amount of loans in all sectors that will need to face these decisions soon.
Possibilities of Refinancing Now: A Closer Look
Lower Monthly Payments Are Still Within Reach: If you play your cards right by taking action early on and securing a good rate, refinancing could still trim down those monthly payments if the equity has increased enough.
Predictable Terms: Refinancing today might offer more stable and beneficial terms, like switching from an adjustable-rate to a fixed-rate loan.
Considerations:
Upfront Costs - A Short-Term Investment: Yes, refinancing comes with costs, but think of it as investing in your property's future.
The Underwater Risk - An Informed Risk: With potential property value declines, there's a bit of a risk. Don’t wait until you’re out of options to take action hoping that the interest rates will drop by the time you need to refinance.
Strategies to be prepared in the face of refinancing this year:
Forge Strong Bonds with Lenders: Relationships matter. Being in your lender's good books can open doors to financing even when times are tough.
Assess Early, Act Wisely: Take a good look at your property now. Understanding your position early can guide your decision to refinance or list your property. Do an analysis - are you able to invest in any property improvements to increase the value or are there vacancies that need to be addressed? What leases are coming up for renewal and how can you make them more favorable? Will improvements cost more or less than a new downpayment spread needed to refinance to keep the payment the same with a higher interest rate?
Think Outside the Box with Financing: If traditional loans are not Explore joint ventures or private equity. You can also pledge other properties if you need to close the gap on keeping a monthly payment similar without a cash infusion.
Flexibility Is Key: Adaptability in loan terms can be a game-changer in securing that refinancing deal.
Beat the Crowd - List Early: If refinancing doesn’t fit your bill, consider listing your property sooner to stay ahead in the market.
The Time to Act is Now
With the landscape rapidly evolving, those planning to refinance in the coming 8-10 months must act decisively. The current market conditions favor the proactive and the prepared. Whether it's opting for refinancing or considering listing the property, early action can set the stage for success in a crowded marketplace. The commercial real estate sector is not just adapting to change but is poised to capitalize on it. Armed with the right strategies and a proactive approach, owners can turn the tide in their favor. This period is more than just a challenge; it's a proving ground for savvy investors ready to seize the opportunities that lie within.