Will the inverted Yield Curve cause institutional lenders, i.e., banks, to once again begin to liquidate non-performing or sub-performing commercial real estate debt? WINPRO believes so. The Yield Curve inverts when short term interest rates increase over and above long-term interest rates. Most investors use the 2yr Treasury Rate/10yr Treasury Rate to gauge the curve inversion. WINPRO, however, prefers to use the 3-Month Treasury Bill Rate over the 10yr Treasury Rate to quantify curve inversion. Why? Because the 3- Month Bill most closely aligns with the institutional banks cost of depositor capital.
Currently, the 3-Month Treasury Bill sits at 4.59%. The 10yr Treasury is at 3.73% – an inversion of 81 basis points! When depositor cost of capital increases relative to long-term rates, banks typically reduce capital funding. This is the true import of the Yield Curve inversion! So, what does this mean for commercial real estate borrowers:
- Increased borrowing costs
- Lower loan-to-value ratios
- More stringent underwriting
- Increased collateral requirements.
- Less credit availability
- Fewer loan modifications & maturity roll-overs
- Fewer loan work-outs.
To further exacerbate this new normal, borrowers will no longer be given a “COVID Pass”. Banks will begin to call-in existing loans, reduce credit facilities, and liquidate under-performing and non-performing credits. New credit will be difficult to secure. These dynamics will create a void in the capital markets – a void that well-positioned private credit can infuse. This creates an exciting opportunity to invest in private credit. WINPRO offers investors such a credit investment platform. WINPRO offers investors:
- Preferred Returns – Ten percent (10%) return on invested capital.
- Cash-Flow – Preferred Return disbursed to investors quarterly.
- Safety – All loans secured by commercial real property.
- Loan-to Value Rations – >.65 calculated on existing value estimates.
- Regulated: Investment is Regulated by SEC Reg. D 506
- Diversification – Capital invested across entire loan portfolio.
- Capital Appreciation – Loan purchase discount, default %, loan fees, etc.
- Capital Gains Tax Treatment – Possible under certain circumstances.
- Professional Management – WINPRO has over 30 years of experience in commercial real estate investment, management, development, and capital market investment.
Please call WINPRO today to learn more about the exciting investing opportunities that private credit offers.