October 29, 2023
Geopolitical Challenges – Keep Calm & Charge On!
In the world of commercial real estate, the landscape is ever-evolving. Keeping a close eye on financial market updates is crucial for making informed decisions. Let's explore some of the latest insights into interest rates and financing for owner-occupied medical real estate.
Interest Rate Update
Despite a quarter-point hike at the Fed's meeting in July, there was a pause in September. As of this writing, the prevailing sentiment suggests that there will be no more rate hikes for the remainder of the year. In fact, the highest probability is pointing towards a rate cut – potentially in September 2024 – with a likelihood of around 60%.
The 10-year treasuries briefly touched 5.00% before retreating down to 4.85%. The yield curve remains inverted, but there are signs of it moving towards a "normal" shape. Longer-term rates are on the rise, meeting the higher short-term floating rates at their peak, achieving a “soft landing.” This reinforces the Fed’s notion of rates staying "higher for longer," rather than the aggressive rate-cutting campaign that some had anticipated for this year.
While the financial landscape is in flux, geopolitical events are playing a significant role in shaping the economic outlook. Events like the conflicts in Ukraine and Israel, the 2024 U.S. presidential elections, and a hawkish Federal Reserve focused on managing inflation are all contributing to a climate of uncertainty.
One crucial factor, however, that might not have made it to the headlines but could significantly impact your ability to secure favorable lending terms is the Basel III Endgame (B3E). No, it's not the title of the next Avengers movie; it's a set of banking regulations that could affect everyday borrowers more than they realize.
Understanding Basel III Endgame (B3E)
B3E is an international committee of banking regulators formed in response to the global financial crisis of 2007-2009. The goal was to establish uniform banking standards worldwide. After years of work, the final "endgame" was agreed upon in 2017.
Impact on Borrowers
B3E recognized that during the financial crisis, many lending institutions used financial models that didn't accurately reflect market norms. For U.S. regulators, this led to limitations on banks using their own risk models to determine capital requirements for lending activities. Consequently, lenders must now adhere to higher capital requirements, translating into higher interest rates for everyday borrowers.
Finding a Solution
While there's no one-size-fits-all solution to the regulatory pressures on banks, there is a best practice that many borrowers are leveraging: vetting the market and casting a wide net. B3E primarily affects banks with over $100 billion in assets, creating a unique opportunity for lenders under this threshold to compete where they typically couldn't. In other words, competitive proposals are still on the table, but the institutions providing them might be different from what you're used to seeing.
In the complex world of medical real estate financing, it's vital to stay informed and adaptable. Despite geopolitical challenges and regulatory changes, opportunities still abound for savvy borrowers. The key is to keep calm, stay informed, and forge ahead confidently.
Your journey in the medical real estate market is unique, and the right guidance can make all the difference. If you're considering financing options for owner-occupied medical real estate, schedule a call with our team to help you navigate the ever-changing landscape and secure the best terms for your unique needs.
Stay informed, stay proactive, and charge on with confidence!