Pub. 6 2018 Issue 3

www.uba.org 18 W hile rising interest rates generally means an increase in profitability for the banking sector, (according to a June 2018 piece in Investopedia.com) as the increases in the interest rate directly increase the yield on their cash hold- ings, and the proceeds go directly to earnings; for commercial real estate customers, it often means uncertainty that can lead to panic. But John D. Evans president Mountain West Small Business Finance (MWSBF) a certified development company, explained that, “If you’re taking care of your customers, spend- ing time to understand their concerns regarding the changes in interest rates, and talking about solutions, the frustrations and concerns are easily mitigated.” He adds that, “putting things in a historical context can also be beneficial to allying concerns as customers.” “While rates have increased from the historic lows, they are most likely to go higher from here, so now is still an excellent time to borrow,” explains Matt Hunt, Chief Credit Officer for AVANA. Hunt, who has worked in the commercial real estate lending industry for 20 years and notes that compared to histori- cal averages, rates remain relatively low today. “The historically low interest rate environment we have experienced over the past 10 years is the direct result of actions taken by the Federal Reserve and US government to help soften the blow of the Great Recession,” he says. “The low rates were intended to be a short- term solution to free up liquidity in the market and stimulate investment and growth in the economy.” But, he explains, “we have all grown accustomed to being able to borrow money at very cheap rates.” He recalls purchasing his first house in 1998 with a 7.25% inter- est rate on a 30-year mortgage and thinking, “I got an incredible interest rate.” He says at the same time, the loans in the own- er-occupied commercial real estate loan portfolio at the bank he worked for had an average interest rate of 10% in 2000. Hunt says that just as homeowners have been able to borrow to purchase homes at rates in the 3.50% to 4.50% range for the past decade, businesses and investors have been able to acquire commercial real estate with financing at historically low interest rates ranging from 4.00% to 5.00%. “This was an incredible opportunity,” Hunt says, “but could never last. It is going to take time for us all to mentally adjust to the fact that interest rates are coming back to historical norms.” Skyler Peterson Newmark Grubb ACRES vice president indus- trial division adds that as interest rates increase: “Relationships and processes are more important than ever. As a result of the strong economy correlating to rise of interest rates, timing and Taking Care of Commercial Real Estate Customers in a Rising Interest Rate Environment By Sabrena Suite-Mangum