Amerifund Commercial Corp.


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As a result of the election, U.S. Treasury Note yields have risen considerably, up almost 1.25% since the interest rate low of 07-05-16. Commercial Real Estate borrowers now realize it is a different world and borrowers must adjust.

Buyers who seek to acquire Commercial Real Estate will now find prices too high, cap rates too low, to accommodate the targeted returns, as sellers wll take at least one year of rising interest rates before prices are adjusted. Sellers are slow to react to rising interest rates for two reasons, (1) their investment in the property is based on the seller having obtained lower interest rates prior to their recent ascent and (2) it is just the nature of a seller, as once a particular value is in the mind of a seller, it is difficult for a seller to realize the "real" value is lower.

Due to rising interest rates, most of the financing that will close is on refinances, as owners scramble to lock into long-term, fixed rates. No longer can owners rely on short-term interest rates lowering during the next four to eight years. A loud thud will be heard for those that continue to sit on the fence waiting for rates to decline, and those owners will have a challenging time to get off their feet.

To-be-built projects will still be done with the new higher interest rates as tenants, unlike sellers of Commercial Real Estate who refuse to raise cap rates, acknowledge the developers' higher costs of funds and will agree to pay higher rent. Developers will prosper, as tenants will be in expansion mode.

The good news about interest rates rising is that owners with liquidity can invest those funds into higher-yield investments. It has been some time since higher-yield investments have been available, so it will take some time to "get the chops back" in determining which higher-yield investments are appropriate for each investor.



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