COSTS

From Page 8

And instead of buying, for example, a ve-year interest-rate cap — opting instead for the cheaper twoyear cap with three one-year options to renew — borrowers may now be feeling the pinch.

“It turns out that was short-sighted,” Clancy said. “Caps were cheap. When interest rates were near zero, if you had to buy a cap on LIBOR or SOFR, which are the two indexes that loans owed o of, you could have had it for a song. It was de minimis, maybe 15 basis points of the loan balance.”

LIBOR was the London Interbank O ered Rate; SOFR is the Secured Overnight Financing Rate, the replacement for LIBOR after it was revealed that the system was corrupted.

But today, with interest rates much higher, renewing those policies can be burdensome one-time expenses that could cause landlords to try to cash out of their investments or seek capital calls from existing investors who may be unwilling to pony up the cash to re-up those policies.

A Wall Street Journal story from January cites a 2019 Mortgage Bankers Association report that says about one-third of commercial real estate debt has oating interest rates.

With eight rate increases approved by the Federal Reserve in less than a year as it attempts to curb in ation, costs for interest-rate caps have soared, experts said.

“It’s become extremely expensive,” said Ryan Denomme, managing director of Friedman Finance, a subsidiary of Farmington Hillsbased Friedman Real Estate.