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Barclays LIBOR fixing scandal’s real estate impact will be short-term

July 19, 2012 02:15PM

Marcus & Millichap's Bill Hughes

Because many construction loans are based on LIBOR rates, the Barclays Capital rate manipulation scandal could reverberate through the real estate industry, according to GlobeSt.com.

Barclays, which paid $450 million to settle the complaint, was found to have pushed the LIBOR rate artificially high, thus increasing borrowing costs on loans that are determined by the international indicator.

“If I were a client and I had a construction loan or some type of bridge product that was floating over LIBOR, I would ask my lender about how much additional interest did I have to pay because of this Barclays situation,” Bill Hughes, managing director of Marcus & Millichap Capital Corp., told GlobeSt.com. Hughes said the scandal would most affect the multi-family industry, where most new construction is occurring.

But long-term, experts told GlobeSt.com that the scandal’s affect would ultimately be minimal. After all, it’s still cheaper to access capital from markets governed by LIBOR than it is from the federally regulated prime rate market. [GlobeSt]