Cambridge Realty Capital President Jeffrey Davis has seen many senior living owners/operators take financial advice from other owner/operators, only to find themselves paying higher interest rates. “Avoid getting caught up in what other owner/operators say or do with regard to locking in interest rates,” he cautions, adding that he has seen many an operator throughout the years pay higher interest because they listened to well-meaning anecdotal advice from other operators and ended up waiting too long to lock in.
It’s natural to want to talk with colleagues when looking for interest rate and loan information. Seeking input from like-minded consumers is a natural and normal part of “shopping around,” whether it’s a mortgage, a new vehicle or even everyday items such as clothing. Fellow professionals can be an excellent source of information. “Crowdsourcing has its benefits, but,” Davis cautions, “when it comes to locking in an interest rate, the crowd doesn’t have all the information.” In reality, he adds, “no one knows which way interest rates are moving.”
That’s why, as an experienced loan provider and interest rate watchdog, Davis and his Cambridge colleagues always offer this advice to the owner/operator who is holding back on acting on today’s interest rate: don’t wait. “When it comes to interest rates if the numbers work on your project and the proceeds work, never hesitate to move,” Davis urges senior living operators.
“Every operator has his or her own agenda and personal bias when it comes to offering advice about interest rates and their own personal predictions. Not even economists can accurately predict 100 percent of the time which way interest rates will move and when,” he stated. “If someone asked 100 economists in 2002 which way interest rates would be moving, there will always be 30-40% who feel they’re moving up and 30-40% who feel they’re moving down and another 20% who don’t see any change.”
“The year doesn’t matter,” Davis added. “Whether it’s 2002, 2012 or 2020, our economy is manipulated by the Fed and quantitative easing. We’ve been in an artificial market and economy for several years. Don’t believe this will last forever. Those who try to kid themselves will find themselves burned.”
Eric Rothner, CEO of Hunter Management and CEO of Extended Care Consulting LLC of Evanston, IL was one of those operators who found that even waiting a day can burn. Rothner was working with Cambridge President Andrew Erkes on a $35 million transaction. Erkes urged Rothner to lock in his interest rate, but Rothner wanted to wait until the following morning to see what Bloomberg had to say about rate trends. What Rothner ended up waking up to was an 18 point increase. It was a costly mistake that Rothner won’t make again.
The bottom line, according to Davis: “Don’t play with the economy.” That means putting aside personal superstitions and arbitrary “rules,” such as, “if rates drop 25 bp-50 bp I’ll move.” Instead, Davis exhorts, “Ask yourself, ‘does this loan and its interest rates and terms work for me today?’ If the answer is ‘yes,’ proceed and focus on the benefits of the low rates and fixing a low rate now.”
