In an article published in the January / February issue of GlobeSt.com Real Estate Forum, Marni Ahram discusses what commercial real estate can expect in 2022, specifically as it relates to the potential impact of inflation resulting in higher interest rates.
“What does that mean for your interest rates?” asks Ahram. “What is going to be the benchmark placement and what are the triggers? Try to hash that out before you get to the documentation phase when you’re doing your term sheets that lay out the base terms of the loan. Build in the LIBOR sunset and benchmark replacement so everyone agrees how that’s going to work before you spend money with attorneys and fees. There are ways to negotiate around it, but to the extent everybody is in agreement up front, it makes it a little less painful.”
She further explains how she has counseled clients on negotiating a replacement stating, “What will the benchmark replacement rate be and what would the all-in cost for the borrower be after the benchmark replacement is in?”
The article outlines that another aspect to consider on the negotiation front is realistic completion times in development and construction loans because supply chains can create problems.
“Most construction lenders require completion within a certain period of time with principal payments starting once completion has occurred.”
To learn more, you may read the full article here.