There are some excellent opportunities in commercial real estate if you select the right assets, says Thirty Capital CEO Rob Finlay.

In today's podcast roundtable with his team of analysts, Rob explains that while commercial real estate is facing some headwinds, "there is a tremendous upside for the right assets."

Meanwhile, rates are moving upwards following last Wednesday's Fed meeting, during which the board agreed to let around $90 billion run off the balance sheet every month. That, along with strong employment numbers on Friday, led to a mini bear market.

Two-year swaps moved up about nine basis points. Ten-year SOFR swaps moved up 31 basis points.

Hard to draw parallels between today and 2018

Analyst Jay Saunders said the markets saw this back in around 2016 to 2018, during the last Fed tightening cycle. "We saw long-term rates generally move up in line with the Fed until we got to 2018, which was the last time we saw these yields 2.75 to three percent on the Ten-year."

Rob says the market is still around 50 to 60 basis points off pre-pandemic levels. Back then, the market was around 3.30 before it started to sell off.

However, Jay says it's hard to draw parallels with economic circumstances four years ago. There was no inflation, no coronavirus, and today employment is very strong.

A transition from floating to fixed

Analyst Jeff Lee says Thirty Capital is seeing a big transition from floating to fixed rates. He cautions that commercial real estate borrowers may need to get a little creative with their borrowing.

"With some of the steepening, you can make it back up on the curve a little bit to drop a few basis points here and there. But it's not as big as that move used to be before," explains Jeff.

"But on the flip side we've heard a lot of people say they have to go interest-only to keep monthly payments similar to what their prior loan was."

Local banks will be beneficiaries of 'weird' market

Both Jeff and Rob discuss how commercial real estate borrowers are leveraging relationships with their local banks to get loans. Say's Rob: "I think regional banks are going to be the beneficiaries of everything that's going on in this market. You can't underweight a deal in Vero Beach Florida without really knowing the market and knowing the dynamics."

Adds Jeff: "It's the relationships and the local pulse. It's got to be what fuels us through this weird kind of time."

This episode includes:

• Jay's analysis of the SOFR market and rate increases.
• Figures coming out this week are CPI and PPI.
• Get deals done early this week because the markets close early this week due to Good Friday.

The team also gives its prediction on the Ten-year in coming months. Listen to the full episode for their conclusion!

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