ULI fall meeting - 102711 - robert keith - moderator files - uli presentation 2011-3
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ULI fall meeting - 102711 - robert keith - moderator files - uli presentation 2011-3
- 1. Is Debt Readily Available? How To Lock-In Rates Today Robert Keith The C.I.R.M. Chicago, Illinois October 27, 2011 CIRM CIRM Robert Keith (312) 332 2363 [email_address] ©2011 The CIRM
- 2. How Low is 1-Month LIBOR Now? The Corporation for Interest Rate Management CIRM Robert Keith (312) 332 2363 [email_address] ©2011 The CIRM Page
- 3. Have 10-Year Treasury Rates Ever Been Lower? The Corporation for Interest Rate Management CIRM Robert Keith (312) 332 2363 [email_address] ©2011 The CIRM Page
- 4. Remember, the Pendulum Swings Both Ways The Corporation for Interest Rate Management CIRM Robert Keith (312) 332 2363 [email_address] ©2011 The CIRM Page
- 5. How to Exploit Today ’s Low Rates? The Corporation for Interest Rate Management Forward 3-month LIBOR Curve CIRM Robert Keith (312) 332 2363 [email_address] ©2011 The CIRM Page
- 6. Your First Instinct May Be to Swap… The Corporation for Interest Rate Management CIRM Robert Keith (312) 332 2363 [email_address] ©2011 The CIRM Page Interest Rate Indications Monday, October 17, 2011 LIBOR Caps (basis points upfront — not per annum) * Interest Rate Swaps Strike 1-Year 2-Year 3-Year Term Rate (act/360) ** 1.00% 7 25 77 1-year 0.65% 1.25% 5 21 65 2-year 0.75% 1.50% 4 18 56 3-year 0.97% 1.75% 3 16 49 4-Year 1.25% 2.00% 3 14 42 5-year 1.55% 2.25% 2 13 37 7-year 2.05% 2.50% 2 11 33 10-year 2.53% 2.75% 1 10 29 3.00% 1 9 26 4.00% 1 6 18 1- Month LIBOR 24 bps * 1-month LIBOR index; theoretical mid-market values; generally subject to a minimum fixed charge ; premium payable in 2 business days ** 1-month LIBOR index
- 8. Interest Rate Swap = Fixed Rate From Day 1 The Corporation for Interest Rate Management Example 1 .50% Swap 3 year swap rate CIRM Robert Keith (312) 332 2363 [email_address] ©2011 The CIRM Page
- 9. Interest Rate Cap = Protecting the Worst Case While Enjoying the Best Case The Corporation for Interest Rate Management CIRM Robert Keith (312) 332 2363 [email_address] ©2011 The CIRM Page “ in the money” Example 2% Cap
- 10. Hedging the Permanent Loan During Construction can be Expensive The Corporation for Interest Rate Management CIRM Robert Keith (312) 332 2363 [email_address] ©2011 The CIRM Page
- 11. Fixing Forward Today is not Fixing Today ’s Rate The Corporation for Interest Rate Management CIRM Robert Keith (312) 332 2363 [email_address] ©2011 The CIRM Page
Editor's Notes
- RK with The C.I.R.M., based in Chicago. We work as the borrower’s advocate. We reduce the interest expense & inexpensively mitigate the rate risk on your loan. Most of our national & international clients are developers such as Hines, Trammell Crow & Wood Partners and our primary responsibility is to min. our clients’ total interest related costs over the term of the loan. We are advisors, not product brokers. We help create strategies specific to your unique project & holding period. Advising when to go long, when to stay short, when to fix and when to hedge are important decisions to be analyzed as int. exp. Is one of the largest line items in the budget. Cost reductions here flow directly to your bottom line. You partner with these great lenders up here to Finance your project. When you get the Term Sheet, call us and we begin our partnership with you to help create specific strategies and structures to min. costs and boost your returns – giving you an edge.
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- For the past half century, rates have gone from very low to very high and back down to very low. Where next will they go? Pendulum swings both ways
- Forward rates are low, even lower than Dec 2008 You can use portions of the curve now, portions later, Where is the risk on your project? 2012? 2014? Is it better to put portions of the curve to work now, or wait?
- Swaps look cheap now, given where rates have been and where they will be going in the future. Who doesn’t love a fixed rate under 1.00%?! But there are even more attractive alternatives these days. Let ’s take a look at a basic example…
- You ’re busy, swaps are easy – but you’re leaving money on the table. This example is just the beginning of cash savings for your project. With a little more analysis, there is much more we can do for you. We ’ve been helping developers for over 30 years now, creating cost effective rate strategies and structures.
- Basic Swap: you go from floating on 1-month LIBOR to the higher fixed swap rate on Day 1.
- Basic Cap: Have the known worst-case Capped, while still floating on the lower LIBOR for longer.