Updated over 9 years ago on . Most recent reply
Interest rate risk hedging
For those that invest in commercial real estate with NNN tenants and long leases, what strategies do you use to hedge against interest rate risk?
I believe that the most simple hedge is to obtain a loan that has the same term as the lease. For example, if the lease is 20 years, it is nice to get a fixed rate loan for 20 years. This matches the assets and liabilities. But commercial banks are loathe to write a fixed loan for 20 years, especially in my price range (1-2 million dollars).
I have heard that life insurance companies give longer term loans.
Has anyone tried entering into the interest rate swap market as a hedging tool? It seems like this would be the perfect tool with the one exception that the market is designed for big institutions and not single investors. I'm particularly interested in interest rate swap futures as these essentially eliminate counter-party risk. But again, these are not immediately available to individual investors.