Hedging Interest Rates in Commercial Real Estate Finance: Rate Caps vs. Swaps, Security, Intercreditor Issues
Pricing and Trade Confirmations, the ISDA Master Agreement, Counterparties, Current Regulation of Derivatives
About the Course
Introduction
This CLE webinar will describe the use of interest rate caps and swaps as a hedging strategy to mitigate the risk and uncertainty of volatile interest rates. The panel will address the circumstances when an interest rate hedge is appropriate and best practices for documenting the transaction.
Description
Floating-rate commercial real estate mortgage loans present an interest rate risk for borrowers, lenders, and securitizations. High interest rates coupled with the unpredictable rental income are exhausting interest rate reserves faster than anticipated and making long term refinancing difficult.
To mitigate exposure to these risks, market participants employ hedges usually in the form of interest rate caps or swaps. With a rate cap, the borrower enters into an agreement with a swap dealer that caps the interest rate at a specified level for a specific time period. A rate swap allows the borrower to switch their floating interest rate for a fixed rate usually with no additional premium, but with a payment obligation if the interest rate market declines below a certain point.
Under current market conditions, hedge agreements present both opportunities and risks for borrowers and lenders. Real estate counsel should have a thorough understanding of how these hedge transactions work and the financial risks they entail.
Listen as our authoritative panel discusses when hedge transactions should be employed, how they are priced, and the critical aspects of hedge documentation. The panel will also address the unique issues presented when existing financing or intercreditor agreements are in place.
Presented By
Mr. Carey represents clients in a wide variety of derivatives transactions and advises them on derivatives regulatory and compliance issues. His clients include investment companies, hedge funds, foreign and domestic banks, central banks, multilateral development banks and corporate end-users. Mr. Carey negotiates ISDA Master Agreements and other trading documents, including prime brokerage documents, clearing and execution agreements and related collateral arrangements. He also advises his clients on a broad array of derivatives regulatory issues arising under the Commodity Exchange Act and the rules and regulations of the Commodity Futures Trading Commission.
Mr. Print regularly represents prominent financial institutions in large, complex syndicated mortgage, mezzanine, subscription, and corporate/REIT credit facilities. He also represents clients in construction loan transactions involving prominent developers of multi-family apartment buildings and office buildings, among other asset classes. Mr. Print has represented clients in major projects in New York City, including 30 and 50 Hudson Yards, and frequently advises the lead lenders in large construction financings, including large-scale credit enhancement for, or purchase of, government issued tax-exempt and taxable bonds. He also counsels clients on real estate sales and acquisitions, ground leases, and office leases, including those involving landmark hotels and complex industrial land.
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This 90-minute webinar is eligible in most states for 1.5 CLE credits.
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Date + Time
- event
Tuesday, August 18, 2026
- schedule
1:00 PM ET/10:00 AM PT
I. Market conditions and how interest rate hedges are currently being used
II. Purpose of interest rate hedges
III. Rate caps
IV. Swaps
V. Security considerations
VI. Intercreditor arrangements
VII. Existing financings
VIII. Interest rate hedge terms and documentation
XI. Looking ahead to the future use of interest rate hedging strategies
The panel will discuss these and other key issues:
- Under what circumstances are interest rate hedges appropriate in a transaction?
- When should an interest rate cap be used over a swap and vice versa?
- What are some key terms to consider in hedge documentation from the perspective of borrowers and lenders?
- How do existing financings and intercreditor agreements impact hedge agreements?
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Hedging Interest Rates in Commercial Real Estate Finance: Rate Caps vs. Swaps, Security, Intercreditor Issues
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