Impact of rising rates on private notes

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Posted by David on March 18, 2004 at 09:05:01:

I think this is a crucial question/concept to consider for those making investments in private real estate notes. I thoroughly understand the impact of rising and declining interest rates on debt intruments of all kinds.....except real estate notes. We are at 50 year lows on interest rates, which can also be described by saying we are at 50 year highs in bond prices. With that being said, does anyonei n this forum, and particularly you John, have insight into how dramatically a rising rate environment will affect private real estate notes? It's the one risk I have yet to see addressed in any forums discussing real estate notes. Why is this important? If you are using investor funds or institutional funds to finance a note portfolio, you risk a declining asset value as rates climb and the price of your instrumnt potentially declines. This could leave you owing more than you own.

Look forward to hearing some sage words on this subject!


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