There are some excellent opportunities in commercial real estate if you select the right assets, says Thirty Capital CEO Rob Finlay.

In today's podcast roundtable with his team of analysts, Rob explains that while commercial real estate is facing some headwinds, "there is a tremendous upside for the right assets."

Meanwhile, rates are moving upwards following last Wednesday's Fed meeting, during which the board agreed to let around $90 billion run off the balance sheet every month. That, along with strong employment numbers on Friday, led to a mini bear market.

Two-year swaps moved up about nine basis points. Ten-year SOFR swaps moved up 31 basis points.

Analyst Jay Saunders said the markets saw this back in around 2016 to 2018, during the last Fed tightening cycle. "We saw long-term rates generally move up in line with the Fed until we got to 2018, which was the last time we saw these yields 2.75 to three percent on the Ten-year."

Rob says the market is still around 50 to 60 basis points off pre-pandemic levels. Back then, the market was around 3.30 before it started to sell off.

However, Jay says it's hard to draw parallels with economic circumstances four years ago. There was no inflation, no coronavirus, and today employment is very strong.

Analyst Jeff Lee says Thirty Capital is seeing a big transition from floating to fixed rates. He cautions that commercial real estate borrowers may need to get a little creative with their borrowing.

"With some of the steepening, you can make it back up on the curve a little bit to drop a few basis points here and there. But it's not as big as that move used to be before," explains Jeff.

"But on the flip side we've heard a lot of people say they have to go interest-only to keep monthly payments similar to what their prior loan was."

Both Jeff and Rob discuss how commercial real estate borrowers are leveraging relationships with their local banks to get loans. Say's Rob: "I think regional banks are going to be the beneficiaries of everything that's going on in this market. You can't underweight a deal in Vero Beach Florida without really knowing the market and knowing the dynamics."

Adds Jeff: "It's the relationships and the local pulse. It's got to be what fuels us through this weird kind of time."

This episode includes:

• Jay's analysis of the SOFR market and rate increases.
• Figures coming out this week are CPI and PPI.
• Get deals done early this week because the markets close early this week due to Good Friday.

The team also gives its prediction on the Ten-year in coming months. Listen to the full episode for their conclusion!

Follow Rob on Twitter and LinkedIn.

Five out of the last six times there's been an inverted yield curve, a recession has followed.

But the team of analysts at Thirty Capital thinks that if a recession does occur, it won't happen in the very near future.

Says Thirty Capital Analyst Bryan Kern: "The Fed has only hiked 25 bps, so they haven't really done anything yet, outside of providing commentary that's sent the market into a tailspin."

Bryan does note that there are some signs of slowing growth, particularly in retail sales. The question now is if the U.S. does have a recession, when will it happen?

He thinks if a recession does occur it will be in 2023, and it won't be severe. Of course, no one can predict the future, but Bryan believes the current narrative about an impending recession is premature and overblown.

He adds it's important for the markets to focus on what's at hand right now - high inflation and a war in Ukraine.

The markets are expecting a full half point increase announcement at the Fed's meeting next month.

Analyst Jay Saunders points out that there is a fairly significant inversion in the SOFR swap curve, with the three-year point being the highest. He says that short-term rates will head north of one percent in the next few months. Listen to the full episode for Jay's details of SOFR rates and what's happening with SOFR in the episode.

Despite the volatility, commercial real estate borrowers are busy and completed a lot of deals ahead of the end of the first quarter. Jay says borrowers need to think about how they will purchase a cap for any upcoming deals and how they intend to address their caps, given that they can be so expensive.

Jay says the next thing the markets can watch out for is the Fed and its balance sheet. "I think the Fed would like to see long-term rates quite a bit higher than they are. They don't like inverted yield curves. And the way to do that is to start accelerating how quickly they unwind their balance sheet."

In the past, people could go for a five- or seven-year loan. But this flatness wipes all that out.

Analyst Jason Kelley says that forward Fed funds are predicting much higher rates, up to three percent next year. His analysis is that the market believes the Fed is going to overdo it and "just blow through, then we'll have some kind of recession and rates will come back down."

He says Thirty Capital is looking at putting some hedges on internally. They are going to skip the '23 and '24 tranche and lock in some of the '25 and '26 rates.

Jason gives an analysis of the current market conditions and their impact on the commercial real estate market.

Listen to the full episode for the team's full analysis on market activity and how this impacts commercial real estate investors.

The Ten-year Treasury has been all over the place in the past few days, as the yield curve continues to flatten.

There have been wild intraday swings as well as - of course - movement within the past few days.

Thirty Capital Analyst Bryan Kern says: "We've seen a ton of volatility, but obviously the general trend is upwards."

The Two-year was up 16 bps and the Ten-year 18 bps, briefly touching 2.50 on Friday. In the last two weeks the Ten-year is up about 32 bps and about 42 bps on the Two-year.

Bryan believes that the Ten-year should be much higher than what it is, given all the qualitative easing that happened during the pandemic.

Bryan says he doesn't see a recession in the next 12 to 18 months, despite there being a lot of talk about an impending recession in the news.

"I believe the Ten-year is artificially low because of quantitative easing," he says. "Realistically, we shouldn't be anywhere near an inverted curve with what's going on.

"Once the Fed stops buying treasuries, and if they actually quantitatively tightened, we'll see that Ten-year spike," Bryan continues.

He adds that there is a 75 percent chance of a 50-bps hike in May, and that it is likely the Ten-year will head higher, with the floor for the next quarter at 250.

Thirty Capital analyst Jay Saunders says some clients are experiencing sticker shock on some of the pricing of deals.

Looking at SOFR swap rates, three-year SOFR swap rates were up 36 bps last week.

The highest point on the SOFR swap curve right now is a three-year SOFR swap. It's the high-rate, high benchmark on the curve. From there, it goes downhill, all the way out to 30 years.

Jay adds that the Three-year treasury has increased 144 bps in the first quarter of 2022. That's the largest move up in the Three-year treasury in 50 years.

Jay says commercial real estate borrowers can expect to see all the rates creep up as the next Fed meeting nears.

Short-term rates have pulled in the last Fed increase. One-month LIBOR is now trading at 45 bps, one-month SOFR at 31 bps, while the three-month LIBOR is one percent.

He adds that while many analysts are predicting high rate increases, he believes the Fed will be more measured with interest rate hikes.

"Clearly the market's anticipating short-term rates going up quite a bit and that's forcing the short-end of the curve up. The long-end is just not keeping up."

He adds that commercial real estate clients are concerned about where rates are going, and are prudent when it comes to buying rate protection.

You can hear the full update, news, and analysis by listening to the full episode. Be sure to follow Thirty Capital CEO Rob Finlay on Twitter and LinkedIn.