What are you assuming for refi in your models right now?

What are you assuming for refi in your models right now?

We buy on floating-rate bridge debt, stabilize the property, then refinance into permanent agency debt and return capital. That only works if the refi assumptions are honest.

I underwrite to terms available today, not where I hope rates are in two years. I size proceeds off current agency quotes and stress debt service at higher coupons. If a deal only works with a big drop in rates, I pass.

The exit cap gets most of the attention, but the refi assumption is usually where models get aggressive.

How are you handling it — underwriting to today’s market, or pricing in relief?

Originally published on LinkedIn.

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