What Is Swap and Cap Advisory for Real Estate Loans?

Swap and cap advisory is a specialized service that helps commercial real estate (CRE) owners and operators manage interest rate risk through financial derivatives. As portfolios increasingly rely on floating-rate debt structures, rate volatility can create significant unpredictability in cashflow, debt service, and investor distributions. Swaps and caps help mitigate this uncertainty, making debt advisory critical for effective risk management.

Understanding Interest Rate Derivatives for CRE

Interest rate derivatives allow CRE professionals to hedge against rising interest rates. The two most commonly used instruments are:

Interest Rate Swaps: Contracts where borrowers exchange floating interest payments for fixed payments, providing certainty in debt service over the loan term.

Interest Rate Caps: Derivatives that set a maximum interest rate on floating-rate loans, protecting borrowers from rising rates while allowing participation if rates decrease.

These instruments can be employed proactively at loan origination or defensively in response to changing market conditions or loan maturities, but require deep expertise to select, price, and manage effectively.

Why Swap and Cap Advisory Matters for Real Estate Operators

Engaging a debt advisor ensures you not only select the right hedge instruments but also execute them at the most advantageous times and pricing, with ongoing management:

Strike Rate Selection: Advisors analyze cashflow projections and run sensitivity analyses to determine the optimal cap strike price or swap fixed rate, balancing protection costs with potential savings.

Market Timing & Pricing: Leveraging real-time market data, advisors execute hedge transactions at favorable pricing, which can translate into significant cost savings over the life of the hedge.

Regulatory & Accounting Compliance: Proper documentation and reporting in accordance with hedge accounting standards are critical to avoid accounting issues—advisors provide essential guidance here.

Lifecycle Management: Advisors monitor key triggers, renewal dates, and potential unwind scenarios, ensuring your hedging strategy remains aligned with your evolving financing and investment goals.

When to Use a Swap or Cap in CRE Financing

At Loan Origination: Many lenders require hedges on floating-rate loans; early advisory ensures compliance without overpaying for protection.

Before Maturity or Refinance: Caps can stabilize interest payments as you prepare to refinance or reposition properties, reducing uncertainty during transition periods.

To Satisfy Debt Service Coverage Ratio (DSCR) Tests: Strategic hedging can improve underwriting metrics by capping payment exposure and protecting cashflow, helping meet lender requirements.

Benefits of Expert-Led Swap and Cap Advisory

Cost Optimization: Advisors help you avoid overpaying for hedges by navigating bid-offer spreads and executing trades at market-efficient prices.

Customization: Every loan and property has unique risk profiles—advisors tailor hedge structures to your loan terms, business strategy, and portfolio risk appetite.

Risk Transparency: Clear, detailed modeling and reporting provide insights into how hedges impact debt service obligations and overall return metrics.

Ongoing Monitoring: Markets fluctuate, and so should your strategy—advisors provide continuous oversight and adjust or unwind hedge positions as conditions change.

Why Defease With Ease | Thirty Capital is Your Trusted Refinancing Partner

With over 25 years of experience in CRE debt markets, Defease With Ease | Thirty Capital offers comprehensive swap and cap advisory services. Our team combines expert guidance with sophisticated modeling tools and deep market relationships to help you select, execute, and manage interest rate hedges that align with your portfolio goals. We help you hedge smarter, reduce risk, and enhance overall portfolio performance.

Protect your portfolio. Contact our interest rate advisory team today.

“We appreciated your patience as you explained very clearly each step of a highly technical process and made yourself available when we needed you to answer questions or provide information. Your efforts made the process seem flawless.”

“Thirty Capital Financial provides true turnkey service. We are a very hands-on client, and the group has met our expectations for process management, cost efficiency, and timing every time. Thirty Capital Financial provides an objective, expert service that helps us meet our transaction goals.”

“Your expertise was critical in making this transaction run smoothly from start to finish. Your knowledge and professionalism made this transaction seamless. You took what could be a complicated transaction and made it easy!”

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