Keeping up with the speed of change within a bank often requires quick decisions on a variety of topics. Things can slow down when bankers need “perfect” or complete information about a decision. The reality is that perfect information is almost impossible to come by, and even if it was available, it ends up hurting the process anyway.
According to the latest data from Moody’s/RCA CPPI, the value of commercial real estate rose by 0.5% in March bringing the total appreciation rate for 2017 to 0.8%. This has been in-line with most bank’s projections that forecasted an average of 3% for the year, or 0.75% for the quarter. Most of this growth was a result of demand in major metro markets, as smaller markets saw a decline in value of 0.2%.
When is the right time to refinance an existing commercial real estate loan on your books? Refinance too early and you most likely forgo a larger credit spread. Refinance too late and the borrower seeks additional competition. In previous analysis we showed that the average spread between refinancing with and without competition is about 40bp. Thus, we advocated putting a retention program in place that covers any loan above 1.2x debt service coverage that does not have some form of prepay protection.