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Another Rate Hike Causes Little Concern in CRE Circles

June 20, 2017

Another Rate Hike Causes Little Concern in CRE Circles

The move is unlikely to change conditions in the commercial real estate sector, according to industry insiders.

June 14, 2017 | by Elaine Misonzhnik | National Real Estate Investor

As has been widely expected, the Federal Reserve raised its target interest rate by 25 basis points on Wednesday, to a range of 1.00 percent to 1.25 percent, Reuters reports. This marked the second time the Fed has raised interest rates this year. But the move is unlikely to change conditions in the commercial real estate sector, according to industry insiders.

What worries some analysts more is the Fed’s plan to start unwinding its $4.5 trillion balance sheet, which includes Treasury bonds and mortgage-backed securities. Together, those two types of investments total $2 trillion of the Fed’s portfolio and have the potential to affect liquidity in the debt markets for both residential and commercial real estate, notes Jim Costello, senior vice president with Real Capital Analytics, a New York City-based research firm. The Fed would need to move with extra caution to avoid disrupting the market, he says.

“The risk here is that as the Fed starts unwinding their balance sheet, it creates competition for capital with lenders needing to raise their rates to attract investors. This said, it won’t happen all at once and it is going to be a slow process. The expectation at the moment is that the Fed will not come out so quickly as to have an impact on that investor pool.”

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