Sell? To whom?
From the Wall Street Journal:
The cost of interest-rate hedges, which are mandatory for most floating-rate commercial real-estate loans, is soaring
The eye-watering price of interest-rate hedges could push more property owners to put up a “For Sale” sign. Lenders in the U.S. commercial mortgage-backed securities (CMBS) market and banks usually require borrowers to hedge their interest-rate risk when they take out a variable-rate loan.
If a landlord buys an interest-rate cap with a 3% strike rate, they receive a payment whenever benchmark rates—often the secured overnight financing rate, or SOFR—rise above that level. This reassures lenders that the borrower will be able to meet its debt payments even if interest rates rise.
Protection bought by real-estate investors can last for up to five years, but typically runs for three. Many of the interest-rate caps bought during the pandemic are still shielding landlords from higher debt costs but are due to roll off this year and next.
Buying new hedges will be expensive. According to data from risk-management firm Chatham Financial, a three-year cap at 3% for a $100 million loan cost $98,000 in April 2019. Today, the same cap costs $3.48 million....
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