Get a fix on floating-rate risk

Chris Marrison examines the challenges of quantifying interest rate risk in commercial real estate portfolios

One of the major manifestations of the current market crisis is the increased volatility in short-term interest rates, such as three-month Libor. This development has reminded commercial real estate lenders of the risk posed by floating-rate loans.

Over the past decade, there have been four principal forces pushing lenders away from fixed-rate loans: forgetfulness, borrowers, treasuries and mislaid risk. The forgetfulness is simply that interest rates have been stable for as long as many