Increase to the Consumer Price Index Spells Inevitable Rate Hikes in 2022

Originally published on MPA Mag

One indicator that helps to predict the mortgage narrative is the consumer price index (CPI). Acting as a financial barometer of the inflationary climate, commercial mortgage lenders like to keep their eye on any changes to this inflationary measure.

With changes to the CPI, changes to lending rates will likely follow.

This year many in the commercial mortgage sector are in for a shock. At 6.8%, the CPI annualized increase represents its highest jump since 1982.

The lending goalposts are already moving to accommodate the almost certain rate increases predicted in 2022 based largely on this inflationary index.

Along with the CPI increase, commercial lenders are bracing for anticipated changes to the overnight rate dictated by the Federal Reserve. Any change in the overnight lending rate will directly impact floating rates on all commercial loan arrangements.

There are other inflationary pressures at play that are causing a domino effect. Inflationary indicators today lead to rate changes down the mortgage road. 

Liberty SBF and many US-based commercial lenders are waking up to the CPI news with the realization that it is more than likely that the historically low rates that we have seen up until now will not stay this low forever.

As a result, Alex Cohen, CEO of Liberty SBF, is of the view that steps should be taken in the short term to help buffer clients against any potential new year mortgage rate increases fuelled by converging inflationary factors. 

“I think that the inflationary pressures we face are very timely. The number that just came out is certainly a big one. We still must think that we are at the peak of the supply chain disruption. The costs of goods in the US are going up and the energy prices have gone up too,” Cohen pointed out.

While the CPI has been influenced by unique supply chain disruptions including backups at major US ports, the supply issues need to be corrected before there is any relief. Cohen predicts that we will not see this happen until well into 2022. 

Lending Solutions

Providing possible answers, Liberty SBF is in the unique position of being able to work with the Government-sponsored Small Business Association (SBA), which means the lender can use this partnership to offer flexible loan options when floating rates start to rise.

Cohen and Liberty SBF are encouraging borrowers and investors to switch to Government-sponsored SBA fixed-rate loan options now, ahead of the predicted new year rate hikes. To achieve this seamlessly, Liberty SBF has set up a team to work with commercial real estate investors when refinancing into these low fixed-rate mortgage options.

“We are identifying borrowers now who can refinance when we are at the bottom of the rate cycle. We need to take advantage of this opportunity before the rates go up,” Cohen explained.

He went on to outline that “the SBA subsidizes two types of loan programs. One is called 7a and the other is called the 504. A lot of borrowers use 7a loans which are floating-rate loan options to build properties and, until recently, didn’t have the option for refinancing because they used a subsidized high-leverage loan.”

That was then and this is now. Cohen pointed out that, thanks to a recently passed Government rule change, commercial investors and real estate borrowers can now “refinance SBA debt into SBA debt”.

Cohen is excited about what this recent lending announcement represents for Liberty SBF and its commercial clients.

“We are reaching out to borrowers who currently have these floating rate SBA loans backed by real estate and providing them with some real options,” he said. “They can now refinance into a low fixed rate 504 option. We can secure for them a lower rate and if there is significant equity in their property, then a cash-out is typically on the table.”

This is welcome news for some of the clients that Liberty SBF works with that have built up considerable equity in their existing high-leverage loans.

“We are typically targeting borrowers who have been in their existing mortgages for three-plus years. These clients are successfully executing their construction plan and have completed a lease plan, and this builds significant equity value,” Cohen said.

New year commercial prospects

Despite recent financial indicators, Cohen continues to remain cautiously optimistic about commercial lending prospects leading into 2022. Other factors enter the mortgage game plan that go beyond anticipated rate changes and inflationary predictors.“

We are still seeing major rent growth moving into 2022 and demand for multifamily and single-family residential construction. We believe that the commercial construction market will remain strong,” Cohen predicted.

“Inflation is not the only input. We are still at all-time low rates and supply and demand factors are at play. We are very optimistic about the next couple of years. The macroeconomic shift may have caused folks to get a little bit more disciplined. If the market takes a disciplined approach, then there is certainly a lot of value yet to be created over the next two or three years.”


Fixed-Rate CRE Loans at All-Time Low | 25 Yr Fixed | Now 3.63%

Debenture rates for SBA 504 loans have dropped below 4% this month, reaching all-time lows.

 SBA 504 Loan Rates:

  • 25 Year Effective Rate: 3.63%
  • 20 Year Effective Rate: 3.53%
  • 10 Year Effective Rate: 3.92%

Financing available for owner user industrial, owner user office, healthcare, self-storage, and hospitality properties.

Earn up to 2 points paid at closing by Liberty SBF

  • Up to 90% LTV
  • Long-term, low fixed rates
  • Close in 45-60 days!

Get Your Deal Quoted!


Big News For SBA 504 Loans!

The SBA 504 loan program reached a couple of milestones this month. First, the 25-year loan program (which you can read about in our by-lined article here) reached $1 Billion in lending, just under a year since the program’s first funding in July 2018. This figure represents 1,289 fixed-rate 504 loans to U.S. small businesses.

The 25-year maturity’s success is attributable to an outstanding interest rate, which is fixed for 25 years. Over the past twelve months, the average effective rate for the 25-year product was below 5%.

The second big news is the 20-year SBA 504 loan funding at a historically low of 3.98%. This is the lowest it’s been in the program’s 33-year history, and below the December 2012 record of 4.01%.. At 152 basis points under the Bank Prime Rate, the June funding is the furthest below prime that 20-year rates have been since May 2007. (See chart above.)

Clearly, no time has ever been better for SBA 504 borrowers to lock in a fixed-rate commercial property loan. Beat the rush that will be triggered by the new low rates, and contact us today to get started. Liberty SBF can get the job done in 45 days or less.


SBA 504 Loan Rate Drops to Historic Low

This June, SBA 504 borrowers can secure financing at a 20-year fixed rate below 4 percent for the first time in the program’s 33-year history. The 20-year effective rate for June is 3.98 percent, below the December 2012 record of 4.01 percent.

At 152 basis points under the Bank Prime Rate, the June funding is the furthest below prime that 20-year rates have been since May 2007. Market observers are predicting that the Federal Reserve will make two ¼-point interest rate cuts this year, but even with cuts, the 504 effective rate may remain approximately one full point below prime. This is the first time a 20-year 504 effective rate calculation has been this low.

Clearly, no time has ever been better for SBA 504 borrowers to lock in a fixed-rate commercial property loan. Beat the rush that will be triggered by the new low rates, and contact us today to get started. Liberty SBF can get the job done in 45 days or less.


Rate Cut Expected as POTUS Pressures Fed

President Trump continues to criticize the Federal Reserve sharply for past interest rate hikes. He is demanding rate cuts in 2019. Stock market investors, rattled by threats to impose tariffs on Mexican goods, want rate cuts to bolster the equity market. Most (95 percent) Wall Street observers anticipate that the Fed will announce a quarter-point cut following its June or July meetings, according to BMO Capital Markets.

The Fed’s strategy conference last week in Chicago began to prepare the public for a round of quantitative easing in an effort to short-circuit opposition to the measure. Citing lessons learned following the 2008 crash, Fed Chairman Jerome Powell said the Fed must take measures now and purchase assets to counteract risks of a recession. Trump’s trade wars put the Fed in a tough spot as it tries to support high employment and low inflation (nytimes.com).

Rate cut or not, today’s low interest rates make this a good time to lock in a fixed rate commercial property loan. Liberty SBF can get the job done in 45 days or less.

Contact us today to get started.


Medical Office in Phoenix, SBA 504 Loan Benefits

The Latest Commercial Real Estate News From Liberty SBF

10 Reasons Applying For an SBA 504 Loan is Worth It

AZBigmedia.com published a summary of the top 10 reasons to apply for an SBA 504 loan. A low down payment topped the list, allowing business owners to purchase a property they otherwise couldn’t afford. A 30-40 percent down payment isn’t attainable for most small business owners but the SBA 504 loan program finances up to 90 percent of the acquisition plus some soft costs. Long term, fixed interest rates are other reasons to go SBA 504. The full list provides a quick education on 504 financing.

Phoenix Medical Office Vacancy Falls 33%

Doctors talking in hospital hallway

Demand in the form of an increased population has helped the medical office market in Phoenix. A new report from JLL shows that vacancy rates have fallen by 33 percent in the past five years. But, it’s not just a population boom that is driving growth in this corner of America. Over the years, Phoenix has attracted some heavy hitters in the medical provider sector including the Mayo Clinic, Banner Health and Dignity Health, the largest hospital system in the US.

The Drumbeat to Cut Rates Gets Louder

As the trade wars continue to escalate, Federal Reserve Chairman Jerome Powell reassured the financial markets, saying the Fed will “act as appropriate to sustain” the current economic expansion. Is a rate cut appropriate to the times? Anxious about the trade war, Wall Street is expecting that the Fed will cut its benchmark rate twice before the end of the year.

Liberty Closes Over $40MM in Industrial Property Loans

Liberty SBF clients have been participating in the new economy with over $40MM in industrial property loans closed across the county. See all of Liberty SBF’s recently closed loans.

How Can We Help You?

Liberty SBF offers quick closings for SBA 504 and conventional loans. We’d love to help you.

Let’s Talk. 


Rate Cut Drumbeat Gets Louder

As the trade wars continue to escalate with President Trump’s new threats to impose high tariffs on Mexico, Chairman Jerome Powell reassured the financial markets on Tuesday, saying the Fed will “act as appropriate to sustain” the current economic expansion. Is a rate cut appropriate to the times? Anxious about the trade war, Wall Street is expecting that the Fed will cut its benchmark rate twice before the end of the year (cnbc.com). 

Not all observers think the Fed should act to cut interest rates. Even with inflation low and looming trade threats, Kansas City Federal Reserve President Esther George said there’s no need for a rate cut. President Trump, however, has been leaning on the Fed to cut interest rates in the context of the trade war with China, saying a rate cut would ensure a US victory: “Game over, we win!” 

The rate game is not over though. We will keep watching as things unfold but for now, one thing is certain: interest rates today remain low. It’s a good time to lock in a fixed rate commercial property loan. Liberty SBF can get the job done in 45 days or less.

Contact us today to get started.


Fed Keeps Interest Rates Steady Despite Political Pressures

With U.S. inflation at 1.6 percent for Q1 2019, the Federal Reserve continues to hold off on any interest rate changes following last week’s meeting of the Fed’s Open Market Committee. With both President Trump and Vice President Pence urging the Fed to cut interest rates, the central bank is working to convince observers that its goal is to see price and wage increases without the expectation of rate cuts. Fed Chairman Jerome Powell said the Fed, as a nonpolitical institution, would not be swayed by pressure from the White House.

Powell said he expects price gains to emerge eventually. U.S. employers added 263,000 jobs in April, resulting in a 3.6 percent unemployment rate. If the labor market continues to tighten, employers may raise wages to attract talent, while consumer demand may allow companies to raise prices. Both are slow to appear at this time.

Economists agree that today’s job boom and low inflation seem unlikely, as low unemployment tends to slow the rate of job creation. For now, however, it appears that the Q4 2018 fears of an economic slowdown were unfounded.

Now is the best time to lock in a fixed rate loan while interest rates are still at historic lows. We can get the job done in 45 days or less.

Contact us today to get started.


Rate Hike or Rate Hype?

Man in suit with graph showing loan interest rates

Will we see an interest rate cut in the near future? The White House is calling on the Federal Reserve to cut interest rates immediately. Rates today are just below 2.5 percent, and President Trump and his economic adviser Larry Kudlow want to see rates at about 2 percent. Investors seem to agree, as Wall Street is already pricing in a rate cut for later this year. Most independent observers in the US are forecasting slowing economic growth.

At the same time, reports CNBC, Fed Chairman Jerome Powell’s dovish March 20 announcement of no change in interest rates set off a week of upheaval in global bond markets, with yields spiraling lower. Expectations of lower interest rates are fueling concerns about a weaker global economy, intensified by fears of what may happen in Europe and uncertainty about a US-China trade deal.

But, leaders in the commercial real estate industry have already said they are anticipating a rise in interest rates, according to Seyfarth Shaw’s 2019 Real Estate Market Sentiment Survey. Amid concerns that the current growth cycle will come to an end, ninety-one percent of respondents said they expect at least one interest rate hike this year, with 6 percent projecting as many as three. The real estate industry sees Fed policy and political and stock market volatility as indications that higher interest rates are on their way.

The one thing we know for sure is that interest rates won’t stay low forever. With a variable rate mortgage tied to the prime rate, monthly payments will rise as rates go up. Business owners with commercial property debt tied to an adjustable rate should protect themselves and their clients by refinancing with a fixed-interest SBA 504 loan. To refinance a government loan (ineligible for the SBA 504), a fixed-rate Liberty SBF conventional loan will do the trick.

Now is the best time to lock in a fixed rate loan while interest rates are still at historic lows. We can get the job done in 45 days or less. Contact us today to get started.


Protect Your Bottom Line – Refinancing to a Fixed-Rate CRE Loan

Rates may be low for now but business owners sitting on debt tied to an adjustable rate should be aware. If you’re a broker or business owner, you can protect your clients or yourself with a fixed-interest SBA 504 or Liberty SBF Conventional loan.

Variable vs. Fixed Rate

Before we get into refinance options, it might be good to compare the two types of rates and show the cost benefit. With a variable rate mortgage tied to the Prime Rate, like an SBA 7a loan, the monthly payment will rise as rates go up. According to the SBA, there is about $113B in 7a loans outstanding making up a major portion of the owner-user debt on commercial real estate in the U.S. Tracking the Prime Rate you can see how it’s risen over the last three years.

On the other hand, the rate on an SBA 504 loan is fixed so that, for the term of the loan, the rate does not change. Using a $1MM mortgage as an example, let’s compare the payment on an adjustable SBA 7a loan tied to the Prime Rate to that of a fixed-rate loan.

  Fixed Rate (Today) 7a (Initial Rate) 7a (Today)
Loan Amount $1M $1M $1M
Rate 5.75% 6.00% 7.75%
Monthly Payment $6,291 $6,443 $7,553
Additional Payment vs. Fixed   $152 $1,262

If your SBA 7a loan was based on the Prime Rate with a margin of 2.25% in 2017 your initial rate would have been 6%. (At the time, the Prime Rate was 3.75%. A margin is the amount that your lender adds to an index rate like Prime to calculate your mortgage rate. So Prime + 2.25% gives you your initial rate of 6%.)

Today, the Prime Rate sits at 5.5% so in two years your rate would have adjusted to 7.75%. (5.5% + 2.25% = 7.75%)

A business owner would see a significant increase in their monthly payment in a very short time, from $6,443 to $7,553, a $1,262 per month increase.

Comparing the above scenario to a fixed rate, a borrower would see a savings of $1,262 per month in a fixed rate loan when compared to the adjustable SBA 7a. And, the longer you wait, the more it might cost you or your client as rates continue to rise.

As we mentioned before, you have options.

Refinance to an SBA 504 loan

In 2016, an act of Congress made the debt refinance aspect of the fixed-rate SBA 504 Loan Program permanent. The enhancement was made to help small business owners ease their financial burden. As we saw above, a long term fixed-rate loan can help refinance debt from adjustable rate loans with significant savings to borrowers. The refinancing loan is structured like SBA’s traditional 504 loan.

A borrower can leverage up to 90% of the value of a commercial property to pay off qualifying debt. An SBA 504 loan is made up of a first and a second lien. A lender provides up to 50% of the value of the property on the first loan and a non-profit organization authorized by the SBA called a Certified Development Company (CDC) funds the government guaranteed second loan up to 40%.

The refinance can include cash-out on top of paying off a mortgage to cover eligible business operating expenses such as salaries, rent, utilities, inventory, or other obligations of the business but the maximum loan-to-value would then be lowered to 85 percent. The maximum cash an owner can take is 20% of the appraised value of the property. (To find out even more about the SBA 504 refinance program read the article we published at the time in Entrepreneur.)

Let’s break it down using a property appraised at $5MM as an example. The owner wants to refinance a mortgage on a commercial property plus working capital.

Property Value Mortgage Payoff Maximum Working Capital
$5,000,000 $3,250,000 $1,000,000

When an SBA 504 Doesn’t Work

The SBA 504 refinance loan is a great way for business owners to fix in a long-term rate on a commercial property and provides plenty of other great benefits. There are some instances where an SBA 504 loan can be ineligible.

First, an SBA 504 loan cannot be used to refinance an existing government guaranteed loan like another SBA 504 loan or an SBA 7a loan. Only conventional loans are eligible, like a bank loan or CMBS.

Also, if a business needs more than 20% LTV in working capital then the SBA 504 Loan Program is ineligible.

As an alternative, there are conventional owner-user loans programs available and each one is slightly different. We will use Liberty SBF’s Conventional Loan Program as an example, which was created specifically to meet the needs of business owners who can’t go with an SBA 504 loan refinance.

Refinance to a Conventional loan

With a majority of the variable rate debt on owner-user commercial properties coming from the SBA, the most common scenario is when a property owner needs to refinance an SBA 7a loan to a fixed rate. Since the SBA 504 program is ineligible to refinance a government loan, a conventional loan will do the trick.

Liberty SBF’s Conventional Loan Program was designed with this particular situation in mind and in almost every way it is identical to the SBA 504 loan. The property still needs to be at least 51% owner-occupied to be eligible and an owner can still take cash-out for business expenses if needed.

The maximum LTV is a little lower on a conventional loan across the board. Liberty SBF has a maximum 70% LTV on multi-use property types and 65% on hotels and special-use.

While all loans are subject to underwriting approval, Liberty SBF’s conventional loan is a more flexible product for deals outside of SBA 504 eligibility.

The cash-out portion allows for one of the largest variances. A Liberty SBF conventional loan has no maximum LTV restrictions on cash-out as long as it is within the maximum LTV range of the property type. When compared to the SBA 504, which allows only up to 20% LTV on the cash-out portion of a loan, this is a huge advantage for business owners who need to draw more capital out of a property.

With the SBA, working capital must be specifically tied to expenses that are incurred within the business being run from the property. Liberty SBF’s conventional loan allows proceeds to be used for other approved purposes, like the purchase of another owner-occupied business.

Of course, the main focus of the program is to refinance out of adjustable rate SBA 7a debt into a fixed rate option and help business owners control monthly expenses, something the Liberty SBF Conventional Loan program does very well.

It’s Time to Refinance to a Fixed Rate

We’re not making any predictions here but ultra-low interest rates can’t last forever. If past is prologue then rates will rise again, along with a business owners’ monthly cost of capital.

Companies need capital to grow. Both the SBA 504 and the Liberty SBF Conventional loan programs allow owners to take advantage of the equity in a commercial property at a fixed-rate to control rising monthly payments and expand their businesses.

Talk to us about options to refinance a rising adjustable rate commercial real estate loans into one of our fixed rate programs. And, as always, we’re more than happy to help.

Contact Liberty SBF today. Email info@i.libertysbf.com or call (213) 297-5747.

You can also connect with Liberty SBF on LinkedIn



News Roundup: Self-Storage Rides a High, Rate Hikes Haven’t Ruined Things and the Dawning of the Age of the Cheap Chic Hotel


Self-Storage Is Up 120%+, Still a Good Bet

interior of self storage hallway with blue doors

Let’s face it, we’re addicted to stuff. And self-storage facilities are there to help. That’s why self-storage sector REITs are up 120.6% in the last eight years. While self-storage rental rates may no longer be growing by double digits, many professionals see plenty of positives in the sector’s future.

Liberty Finances $1.9 Million Self-Storage Facility

Self storage building exterior with red doors

Liberty SBF has provided nearly $2 million in SBA 504 financing to a self-storage facility in Panama City, FL. The loan allowed the owners to refinance their property, while taking advantage of the low fixed-interest rates and long terms of SBA 504 loans to improve their cash-flow position.

Rate Hikes Haven’t Impacted Pricing or Volume … Yet

skyscrapers from below into the sky

While the Fed keeps bumping interest rates higher, and plans to keep doing more of the same, real estate pricing and availability have yet to show repercussions. Globe St. reports that while pricing and sales velocity are currently remaining unchanged, things could slow down toward the end of the year.

Affordable, Trendy Hotels Cash in on Consumer Demand

modern hotel bed with zebra pillows

What do millennials want? Good design. And what do they want to pay for it? Not much. The New York Times is reporting on the rise of the cheap, chic hotel that’s meeting consumer demand with low-priced rooms combined with trendsetting designs. And consumers can’t get enough.

Liberty Finances Hotel Projects in Georgia and Utah

st simons hotel pool exterior

Liberty recently provided funding for two hotel projects, a $7.7 million loan for a hotel on St. Simons Island, Georgia, and a $4.7 million SBA 504 loan for a hotel acquisition in Midvale, Utah.

Industrial Property Activity Spikes in the Midwest

aerial photo of warehouse in midwest

For months, East and West Coast metros have been feeling the heat of incredible demand for industrial properties, fueled by the “Amazon effect” and e-commerce logistics. Now, it looks as though the Midwest is getting involved, with a 103% increase in industrial CRE investment in Columbus, a 41% increase in Chicago and a 29% increase in Indianapolis.

How Can We Help You?

Liberty SBF is the #1 ranked non-bank SBA 504 lender by volume in the country. We offer personal service for SBA 504, bridge and conventional loans. We’d love to help you.

Let’s Talk.