The state of commercial lending as a recession becomes more imminent. Approximately a year ago, we examined Signs of a Slowdown in the local real estate markets. Today, it seems that slowdown may be trending towards a full-blown recession. But what does this mean for real estate investors and lenders?
After slowly increasing rates over the past two years, the Fed reversed course last month, cutting rates from 2.5% to 2.25%, with another cut anticipated before year’s end. As a result, average 30-year mortgage rates fell to a 21 week low of 3.6%, and, per the Colliers Multifamily Team, agency debt on apartments fell to a two-year low in the high-3% range.
This week, an inverse in the yield curve between 2 and 10 year Treasury yields triggered recession warnings as the Dow Jones Industrial Average dropped over 800 points in a single day.
After the market upswing of the last decade, a recession may represent unchartered waters for some newer investors. Falling interest rates may represent an opportunity for well-funded projects with significant sponsor equity, but from the lender’s perspective, now is the time to tighten lending parameters, making financing on many commercial properties more difficult to obtain.
While the real estate market in Seattle and the Pacific Northwest remains strong, investors may find it increasingly difficult to finance acquisitions and new constructions without significant cash investment in the project. Additionally, a recession may provide acquisition opportunities as over-leveraged projects stall or are liquidated.
At Juniper Capital we will continue to monitor national and local economic trends in order to provide the highest level of service and advice to our clients. Opportunity exists in every market, give us a call to talk to an experienced loan officer and start the conversation today.