Browse Tag: libor

Biggest Banks Eyed For Breakup

Goldman Sachs Headquarters, New York City

At long last, the case for “too big to fail” banks is falling apart.

In the wake of the residential mortgage crisis, our industry has for years now struggled with finding the sources of capital its needs to finance the commercial real estate transactions that drive the broader economy.  The role of banks is to allocate that capital to our sector, to manage risk and to both set up and follow rules that promote stability and predictability as that capital circulates into and out of our transactions.

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The Stalled Escalator: Rigged LIBOR And Rent Increases

Under Repair

Brokers and landlord reps use of the escalation clause in a commercial space lease is a common one. These clauses provide for increases in rent over a specified period of time. Often, these increases are determined not by actual increases in the landlord’s operating costs, but are instead keyed to an index, such as the consumer price index (CPI) or the London Interbank Offered Rate (LIBOR).

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LIBOR: How You Probably Got Burned

Interest Rates
Interest Rates (Photo credit: 401(K) 2012)

So did any of the commercial property deals you touched in the past five years or longer use financing?  Let me guess: the answer is yes, of course.  Developers acquiring or improving commercial assets such as land or buildings tend not to self-finance. They often turn instead to our pinstriped friends at the banks for adjustable-rate loans – adjustable, more or less because long-term fixed-rate commercial loans are offered less and less by banks.

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