The Azucena Take: Interest Rates and the Economy of 2021

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You probably have a lot of questions and concerns if you don’t understand interest rates. That is fine because I’m here to break it all down. Specifically, I want you to understand the current rise in interest rates during 2021, how it will affect you and why it’s a good thing.

First I want to put down some misconceptions you might have about the rise of interest rates. While the rise may seem like a massive jump, it’s still lower than what it was before the pandemic. The biggest driving force determining interest rates has been social stability along with renewed confidence in the economy. So while interest rates going up may not look desirable, it’s an indicator that the economy is recovering.

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Marcus & Millichap has already noticed the impact it’s having on the pricing of commercial real estate. Here is a breakdown of what is to be expected and how it will impact possible investments:

  • 10 year fixed financing for an 80% LTV for an apartment property is at the low to mid 3% range.

  • Rates on lower leverage loans like apartments tend to have lower rates.

  • 10 year fixed financing for a 60% LTV for an industrial property is between 2% to 3%.

  • Offices should expect to get a rate in the 3.25 to 3.50% range.

  • Retail property in a good area should be able to receive financing in the mid to high 3% range.

Investors are already starting to take advantage of the current low interest rates before they rise even higher. At this point, interest rates will only go down if there is a serious disruption to the vaccine distribution or the government fails to pass additional stimulus (both which seem unlikely).

Carlos Azucena