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Is Debt Readily Available? How to Lock in Rates Today (Robert Keith) - ULI fall meeting - 102711

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Is Debt Readily Available? How to Lock in Rates Today (Robert Keith) - ULI fall meeting - 102711

  1. 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. 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. 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. 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. 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. 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
  7. 7. … but Swaps are Surprisingly Expensive The Corporation for Interest Rate Management <ul><li>Example: $20 MM loan Capped vs. Swapped at 1% </li></ul>Cap Strategy Saves $302,000! This is just the beginning of your rate optimization strategy. CIRM Robert Keith (312) 332 2363 [email_address] ©2011 The CIRM Page
  8. 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. 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. 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. 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

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