July 13, 2023
Gavin Souter, the editor of Business Insurance, interviews Blair Bartlett, C&F Vice President – Financial Institutions, on the impact of the recent banking crisis and interest rate increases on real estate investment portfolios. Blair discusses how those changes may lead to professional liability exposures for real estate portfolio managers. Watch the interview.
Will Real Estate Portfolios be the Next Victim of Rising Interest Rates?
While a lot of attention has focused recently on the failures of some regional banks, rapid rate increases by the Fed (the fastest in recent history) are likely to cause problems in the real estate sector and for real estate investors. The banking stress that started with the resolution of Silicon Valley Bank has an impact on lending that is likely to be concentrated in a subset of small- and medium-sized banks – lenders with less than $250 billion in assets which account for roughly 50 percent of U.S. commercial and industrial lending, 60 percent of residential real estate lending, and 80 percent of commercial real estate lending. Those banks will likely increase mortgage rates, require higher equity contributions from buyers, and include stricter financial covenants. This action could take potential buyers out of the market, cutting into the demand side of the real estate equation.
Real estate investment managers whose portfolios contain properties with near-term maturities will have to make tough decisions about whether to refinance at higher rates or to sell in a market with reduced demand. Either could lead to painful outcomes for their investors and create a professional liability exposure that underwriters should be aware of and address proactively. Read the article