I’m a 20 year commercial lender and there’s a major issue facing the landlords and ultimately you.

If you’re not familiar, commercial loans generally re-price every five years. They amortize over fifteen to twenty five years depending on the property type.

Loans originated prior to 2022 are still Covid priced for the most part. Those loans are below 5%. Then, the US five year bond was a fraction of one percent. Now we are in 2024 and that five year bond is inching close to five percent. Banks are now paying 5% on one year CDs.

How does that affect you? Well, simple. This year loans originated or renewed in 2019 come due this year. That also means we have almost three years of properties set to re-price. So, there’s a long road still ahead.

An example from late 2023: There was a loan on 459 units in a western state. The loan was for $88 million. It originated in 2018 and came due for it’s renewal.

Do yourself a favor and add 3% to $88 million and divide it by 459 units and then again by 12. This landlord would’ve had to add almost $600 monthly rent increases to every single renter just to break even. The landlord handed the keys to the bank and gave up instead.

By the way I didn’t even mention property taxes. That’s a whole different battle. You’re expected to pay those massive increases too.

I’m not defending any one action or practice. I’m just telling many of you what is going on behind the scenes. It’s not pretty.