With the anticipated sunset date of the London Interbank Offered Rate (LIBOR) a little over a year away, commercial real estate market participants are preparing for an important transition to a new way of calculating the interest rates for many commercial mortgages.
LIBOR is the index most often used in the pricing of some trillion dollars of floating-rate commercial mortgages, which is a significant portion of outstanding commercial mortgage debt. Commercial mortgage brokers typically don’t need to know all of the technicalities and intricacies of how this index works or, in the case of LIBOR, doesn’t work so effectively.
For those who make a living matching commercial real estate borrowers and lenders, however, it’s worth monitoring the transition as it has the potential to impact the economics of deals. The transition is complex and important for borrowers, lenders, brokers and service providers alike. It is well worth your time to get to know the mainline details of the transition before your clients ask about them.
The pending transition deadline is quickly approaching. Regardless of where the commercial real estate transaction process sits at that time, it will impact borrowers’ and lenders’ existing loans — as well as new originations — in various ways over the next 12 months.