On today’s show we’re taking a look at the effect of rising interest rates on virtually all real estate projects. On today’s show we are going to do some math so that you can see the impact on the underwriting of projects. It will clearly show why so many projects are getting cancelled in the current rising interest rate environment.
These numbers are coming directly out of our own underwriting tools and they are the result of what-if analysis that we have performed on several projects.
The real estate projects we’re looking at have fundamentals that are actually quite good. But we’re seeing these interest rate changes and inflation as a math problem.
I’m seeing so many projects being cancelled at the moment as a result of the higher cost of capital.
We are entering a dangerous period. That means that there will be bargains on the horizon if you’re playing offence, and there will be pain on the horizon if you’re playing defence.
Notice that in this discussion, we have not even discussed whether market cap rates change. That’s because they’re irrelevant to the math when you’re debt coverage limited.
We have performed so many of these analyses over the summer that we can almost do the math in our head.
Host: Victor Menasce