Rise in Treasuries Threatens Deals - Dispositions & Transactions via Multifamily Executive Magazine

Bobby Lee, president of the investment division of Los Angeles–based JRK Property Holdings, has gotten a number of calls from brokers this week. They haven’t been shopping new properties or inquiring about sales opportunities. Instead, they’re checking to see if Lee would still be interested in buying properties that he had finished second or third on originally.

“For a lot of deals [on which] we finished second, third, fourth, and fifth earlier in the year, we're starting to hear scuttlebutt from brokers asking if we're still there,” Lee says. “Many are deals awarded in the last month where brokers are concerned about fallout resulting from either trouble raising equity or returns getting squashed because of rising interest rates.”

Uncertain Projections
With the movement of the 10-year Treasury rate jumping from 1.98 percent on March 7 to 2.24 percent on March 23, a lot of buyers got spooked. Because of that, Lee says he’d be surprised if more than half of the deals in the pipeline right now get closed. The wider the spread between the yield on the 10-year Treasury and a cap rate, the better. So when the 10-year goes up, that shrinks.

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