There are many macroeconomic risks being discussed around the markets that an investor can’t control. Trade Talks, Monetary Policy, recession worries, market bubbles and fundamental and permanent market shifts (Amazon Effect)– to name a few. There is a lot for an investor to consider when pondering their asset management strategy. These issues are out of the investor’s control.
Now may be a good time to decide which assets are a long-term hold and refinance into a long-term fixed rate financing option. This gives you control of some key variables which may affect your strategy in the coming years.
Here are 3 questions to consider before deciding to refinance:
1. Do you think interest rates will be up or down in 2 years?
2. Do you think credit conditions will be loosening or tightening in the coming months?
3. Do you think cap rates will be declining or rising?
I think it’s a safe bet that interest rates will be up, credit will be tightening as bankers anticipate the cycle and cap rates will begin to rise. Keeping in mind the fed has raised interest rates the past 5 quarters, long-term interest rates remain historically low. The 10-year Treasury is trading at 2.69% versus a long-term average of 6.19%.
That is why, in my opinion, it’s logical to think after a decade long bull market, that nothing can last forever and now is the time to optimize your leverage and lock in your cost of capital with a long -term refinancing. It’s controlling the risk you can in an uncertain world.
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Meg Liddy is Senior Vice President of Capital markets at Kelleher & Sadowsky. She specializes in Debt Placement. She can be reached at [email protected], or 508-635-6797.