The 10-year Treasury note rate hit a record low, but is that good news or bad?
In case you haven’t noticed, the 10-year Treasury note rate, which is used for pricing many debt instruments, has fallen to a record low. Anything between 1.50% and 2.00% was considered to be Nirvana for seniors housing borrowers. But the 10-year rate has now dropped below that range, and has been flirting with 1.35%. Remember talk about rising interest rates? Yes, at some time it will happen, but that time seems to be getting pushed out into the more distant future with each piece of bad news. So for seniors housing borrowers this may appear to be good news. Except once you get beyond the euphoria of your acquisition pricing models with debt so cheap, stop and think about the implications of record low rates, what it means for your customer, and what it says about the future of the economy. Not so rosy, is it? Does it spell stagnant growth, the possibility of a recession sooner rather than later? Does it mean the returns on your resident’s portfolios just may not meet their expectations? Does it mean healthcare REIT share prices will jump? That has been a given every time interest rates dropped. But this time it is not having the same impact, perhaps because investors are looking at the macro real estate and investing environment, and not just REIT spreads. On the flip side, there may never be a better time to refinance your mortgage, on your house as well as your seniors housing properties.