Dagens Industri: A new cost shock awaits real estate companies
For many highly indebted and already struggling real estate companies, a deferred cost shock is lurking around the corner. Amounts of real estate loans will soon be converted to variable interest rates, says lawyer Johan Lundberg at RE:FI Sthlm in an interview with Dagens Industri.
For many companies, a delayed interest rate shock awaits, states lawyer Johan Lundberg, who has worked with financing matters for over 25 years. Most recently at the business law firm Cederquist, now under own management at newly started RE:FI Sthlm – the country’s first specialist firm in the field. Above all, already hard-pressed real estate companies are hit, whose earnings do not compensate for the rapidly rising interest rates.
“In the case of real estate loans, the bank requires that the loans be secured against interest. The term is usually five years, while the requirement for interest hedging is typically three years,” he says and continues: “The rise in interest rates since 2020-2021 is therefore only now affecting the property companies and their loans. The companies’ earnings are linked to inflation, but the interest rate has risen more than inflation.
Another downside for the real estate sector is tightened capital adequacy requirements, which may tighten banks’ lending. Johan Lundberg points out that major banks see a risk of their loan operations being reduced to “super senior operating financing”. That is, loans with high security and worse margins than so-called junior loans, where the risk is higher but the earnings are better.
Read the full analysis at Dagens Industri here (in Swedish).
