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Analysis

Expiring Interest Rate Caps to Fuel Distressed Property Sales

Cost of hedges on floating rates is 10 times higher than a year ago.

An exponential increase in the cost of interest-rate caps—insurance that CRE borrowers with floating rates purchase to hedge against rate increases—may soon spawn a wave of property sales in an increasingly distressed market.

In 2019, the Mortgage Bankers Association estimated that up to one-third of all commercial property debt was floating rate, with most lenders requiring that borrowers hedge against an increase in the borrowing costs.

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Jack Rogers

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