Interest Rates and Distressed Real Estate

When I was at Sperry Van Ness about 15 years ago, David Frosh was the president of the national brokerage firm. Not only was Frosh a charismatic leader he was also incredibly well informed and helped SVN grow exponentially. The attached is Frosh’s take on why the Fed, in lowering the Federal Funds rate, will not solve the problems of distressed loans, borrowers, lenders and properties. Frosh argues that the Fed is deleveraging its balance sheet thereby reducing liquidity in the system. Frosh notes that nearly $1 trillion in commercial real estate debt comes due in 2024. Concurrently, regulators are requiring banks to lower their exposure to CRE by keeping more cash on their balance sheets. Frosh opines that the Fed will not allow banks to fail but the same is not true for investors who may see much of their current equity in a property disappear due to lower property values and higher interest rates when undertaking a refinance. The answer for investors? Give the property back to the lender. Frosh’s compelling argument worth taking a few minutes to read and digest.
Svikhart & Associates, a Salt Lake City-based real estate services company, focuses on asset management, brokerage listings and sales, and all aspects of a multifamily investment. Specific diligence regards property operations and strategies to maximize asset performance and value. Additionally, the firm assists owners regarding economic, financial and market factors that impact returns on investment. The firm targets ‘Mid-Tier’ assets which it defines generally as 10-to-60-unit properties.
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