Low Interest Rates Fuel Retail Refis

Low interest rates are fueling retail refinancing activity. There is strong demand for refinancing deals as these owners are looking to lock in low interest rates, and many owners are able to reduce their current rate by 100 basis points. The deal makes sense for many owners of retail assets, who are able to increase cash flow as a result.

“With interest rates still at record lows, we are seeing a high volume of landlords continuing to take advantage of refinancing,” Ben Townsend of SRS Real Estate Partners’ debt & equity team, tells GlobeSt.com. “Many of our clients have been able to reduce their rate by more than 100 basis points while also pulling out additional equity to invest in more opportunities. Often times, even if an owner can lower an asset’s existing rate by 50 basis points, it still makes sense to look at the increase in cash flow after re-amortizing a loan.”

Retail owners interested in refinancing with the new low rate should have a professional run the numbers to see if it makes sense. “For example, if an investor secured a $10 million loan five years ago at 5% on a 25-year amortization, the yearly debt service is $701,416,” says Townsend. “Over the course of 5 years the owner would have paid down $1,141,981 of the principal balance. Now, with $8,858,018 remaining on that loan, the debt service is still $701,416 per year. Therefore, if an owner refinances that balance today at 3.75% with an interest only loan, they would only pay $332,175 per year in debt service, a savings of about $370,000 per year.”