What's Now in Real Estate Finance (October 2026)

Topics from our October Agenda Included:

Rate Caps Pricing Movement
Megan Vallerie (New York)

Recent interest rate volatility has led to spikes in the cost of interest rate caps used as credit support for floating-rate real estate loans. Unpredictability in interest rates can have a significant impact on cap premiums in addition to making the loan closing more expensive for the borrower. When cap costs become particularly high, borrowers and lenders have a number of potential structuring options to lower the cost, with each having different costs and benefits within the context of the applicable deal. Some options include shortening the term of the cap, increasing the strike rate, and lowering the initial nominal amount to match funded amounts. In exchange, lenders may require a reserve for the estimated cost of a replacement cap and a losses carve-out if the borrower fails to replace the cap.

A shorter-term cap may also be paired with a shorter (coterminous) initial loan term and additional extension options to approximate the originally contemplated loan term (e.g., 1+1+1 instead of a three-year initial term). In some transactions, the parties may negotiate initial extension options and with conditions focused on the absence of an event of default and delivery of a replacement cap. Other potential structures may include a limited payment guaranty or pre-funded reserve in lieu of a cap, designed to substitute for payments that otherwise would be received under the cap if the index exceeds the strike rate.

We note that lenders will analyze these different options in the context of the particular loan and may not be willing to engage in any or all such workarounds. 

Washington State Multifamily Tax Abatement Policy
Chris Manzer (Seattle)

We discussed Washington State’s Multifamily Tax Exemption (MFTE) program, which provides property tax abatements for qualifying multifamily developments in exchange for restricting a portion of the project’s units to affordable rents and eligible tenants. The available abatement periods and affordability requirements vary depending on the municipality and the nature of the project. From a lender’s perspective, diligence includes, among other things, confirming that the borrower has completed the steps required to maintain eligibility for the exemption upon completion of the project. Relevant documentation may include a preliminary certificate of eligibility and a recorded covenant setting forth applicable affordability requirements. The program also includes, among other things, ongoing reporting and data collection requirements relating to eligible tenants.

UCC Insurance Indemnity Requirements
Seth Taylor (Atlanta)

UCC insurance can present challenges following a mezzanine foreclosure, particularly when the original membership certificate underlying the pledged equity is unavailable. Although coverage without an exception related to the missing certificate may be available with an indemnity, UCC insurers may require the indemnitor to maintain liquidity equal to the loan amount, which may not be acceptable to the borrower or sponsor. Other potential approaches include, among others, negotiating a narrower exception in the UCC policy or adding loss-related recourse to the guaranty. Where a prior mezzanine foreclosure, prior assignment-in-lieu of foreclosure, or lost membership certificate is involved, engaging the UCC insurer early in the transaction can help identify potential coverage issues and available alternatives before closing.

21st Century Housing Bill Overview
Justin Barry (Atlanta)

The team discussed the ROAD to Housing Act, which represents a significant piece of federal housing legislation focused on addressing housing availability and affordability, expanding access to financing, and streamlining government processes affecting the housing market. The legislation addresses a broad range of areas relevant to the real estate industry, including guidance for and expanded authority of federal agencies such as HUD, investment in Opportunity Zones, and incentives relating to manufactured and modular housing. Other provisions address barriers to low-dollar and regional bank financing, streamlining grant programs, veterans’ housing, and the impact of institutional investment in the single-family rental and build-to-rent markets. The legislation is the first major federal housing legislation since the Housing and Economic Recovery Act of 2008 and reflects a broad effort to address both housing supply and access to housing finance.

Following a September 28 presentation in New York, a cross-practice team of Seyfarth attorneys will host a webinar addressing the legislation and developments related to its implementation. Additional details and timing will be announced soon.