Perspective: A Lookback at Historical Borrowing

Some Perspective: A Lookback at Historical Borrowing


Interest rates go up, markets go down, and we all get sideways thinking that the world has come to an end. Scanning the news headlines, you would think that these hikes are the most drastic change to our economy since Henry Ford created the assembly line. Here at NavPoint, however, we believe that a little perspective in a time like this can be soothing and encouraging to the frazzled investor.
Let’s first look at the Prime Interest rate—the basis from which the Federal Reserve Bank sets all other rates. Since the early 80s, there has been a sporadic but continuous decline in the prime rate. This produced a good environment for borrowing and a well-stimulated economy. Figure 1, generated from data provided by the St. Louis Fed, shows the ups and downs of the prime rate over the last 40 years.

There has been a tremendous amount of volatility in the prime rate over the last 40 years, but a bird’s eye view shows a constant downward trend. While the recent hike to 5.5% might seem scary, the truth is we’re still a full point below the historical average of 6.5%. It is important to remember: More expensive than yesterday doesn’t mean overpriced.

If we examine the 10-year treasury rate and the 30-year mortgage rate over the last 40 years, we see a similar trend in our data (provided by the St. Louis Fed).

Figure 2 and Figure 3 look like the exact same data set. The primary reason for this is the close relationship between the two data points. Both rates have experienced a steady decrease, even more consistent than that of the Prime Rate. These low-interest rates have provided us with a friendly borrowing environment for many years, and they will continue to do so despite the recent interest rate hikes. The current outlook on the economy, investing, and leveraged investment specifically, is extremely poor. The stock market is in a severe slump and the US is in a recession (two consecutive periods of negative GDP growth). But, put in perspective, today looks much brighter than 1982, when rates were pushing 15%.

At NavPoint, we have been closely following the Commercial Real Estate Market’s reaction to the changes and shifts in the current borrowing environment (see our last two newsletters). We strongly believe that the CRE market is poised to do very well over the next couple of years. Rather than seeing the rate hikes as a departure from the good and normal, we see them as a correction away from an artificial experiment of unreasonably low rates. With a new normal on the bottom line, investors and developers alike will adjust their expectations and continue to make the most educated decisions they can. Don’t pull out of the market just yet. Remember what Warren Buffet tells us: “Be fearful when others are greedy, and greedy when others are fearful”.

Data Sources:
Figure 1 – https://fred.stlouisfed.org/series/DPRIME;
Figure 2 – https://fred.stlouisfed.org/series/T10YFF;
Figure 3 – https://fred.stlouisfed.org/series/MORTGAGE30US

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NavPoint Real Estate Group (“Broker“) has been retained as the exclusive Broker regarding the sale of the property located at the address noted below.

To receive an Offering Memorandum (“Offering Memorandum“) please read this Confidentiality Agreement and agree to the terms. The details and information contained within the Offering Memorandum were obtained from sources deemed to be reliable. Verification of the information contained within the Offering Memorandum are the sole responsibility of the Potential Purchaser. No representation is made to the accuracy of the information by Seller or Broker. THIS AGREEMENT is made and entered into by and between NavPoint Real Estate Group and “Potential Purchaser” and shall become effective when executed by Potential Purchaser or Potential Purchasers Broker.

A. Commencing with discussions held between their respective representatives the parties have pursued and expect to continue to pursue discussions (the Discussions) relating to the potential sale of:

In the course of these discussions, Seller has disclosed to Potential Purchaser and may continue to disclose to Potential Purchaser certain information of proprietary and confidential nature (“Confidential Information”).

B. Seller will provide to Potential Purchaser certain printed, typed and handwritten materials and other tangible materials containing or relating to Confidential Information (“Documentation”).

In order to protect the Confidential Information, both during the term of the Discussions and after their expiration or termination, Potential Purchaser agrees as follows:

  1. Potential Purchaser shall maintain the Confidential Information in strictest confidence and shall not disclose to any third party any Confidential Information received from the other party. In addition, Potential Purchaser shall ensure that its officers, employees and agents likewise maintain the Seller’s Confidential Information in strictest confidence and that such persons do not disclose such Confidential Information to any other party. Potential Purchaser shall not have the right to use, duplicate, reproduce, copy, distribute or disseminate Confidential Information except for purpose of the discussions and negotiations as needed.
  2. Potential Purchaser agrees to limit access to Confidential Information received from the Seller to its own officers and employees on the absolute need-to-know basis solely for the purpose of the Discussions, and to use the same degree of care in reserving the secrecy of the Confidential Information furnished by the Seller and/or Broker as it uses in preserving the secrecy of its own Confidential Information.
  3. Notwithstanding the conclusion or termination of the Discussions, Potential Purchaser shall continue to fulfill its obligations hereunder for a period of one (1) year from the date of disclosure. Upon termination of the Discussions, all Confidential Information, including all forms of Documentation shall be returned to the Broker, including any copies or adaptations made by the receiving party.
  4. The obligation of Potential Purchaser under Paragraphs 1 and 2 above shall not apply or shall cease to apply to any information which Potential Purchaser can demonstrate by reasonable documentary proof- (a) to have been in the possession of Potential Purchaser at the time it was first disclosed by the Seller and/or Broker; (b) was in the public domain at the time it was disclosed to Potential Purchaser; (c) entered the public domain through sources independent of Potential Purchaser and through no fault of Potential Purchaser; (d) was lawfully obtained by Potential Purchaser from a third party who is free to disclose such information to Potential Purchaser; (e) to have been at any time developed by Potential Purchaser independently of any disclosure from the Seller; or (f) has been in the possession of Potential Purchaser for more than five (5) years.
  5. Potential Purchaser shall not have any right to register any copyright, trademark, service mark or corporate name based upon Confidential Information or otherwise register or claim any right to use any Confidential Information disclosed to it by the Seller without the express written consent of Seller and Broker. Nothing herein, and no disclosure of Confidential Information or Documentation pursuant hereto, shall be deemed a grant to Potential Purchaser, whether by implication, estoppels or otherwise, of any right or license under any industrial property right of the Seller.
  6. The Discussions shall continue until the date on which an Agreement shall have been concluded or the date on which either party shall have given written notice to the other of termination of the Discussions. All obligations of the parties hereunder shall survive any termination of the Discussions.
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For purposes of creating a binding contract in determining the rights and obligations under such contract in any court of law, the parties acknowledge that a signature reproduced by either digital signature, electronic signature, facsimile or photocopy shall have the same force and effect as an original signature and that the original and any such copies shall be deemed one and the same document. In the event this Non-Disclosure Agreement is submitted electronically, this agreement is provided under the Uniform Electronic Transactions Act – Col. Rev. Stat. §§ 24-71.3-101 et seq. By submitting this agreement, you are confirming your agreement to submit this Non-Disclosure Agreement electronically, and your indication of agreement, along with information provided, will have the same force and affect as if this agreement was submitted manually and your manual signature was provided. You should retain a copy of this agreement for your records.

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