Federal Interest Rates Increase to 5.25%, What Does This Mean for Commercial Real Estate Markets?

What did the Federal Reserve Do Recently?

On Wednesday, May 3rd, the Federal Reserve unanimously voted to increase the federal interest rate by .25%, to 5.25%, the highest since 2007. This jump in interest rates marks the third hike so far this year and the tenth in 14 months. The rate increase is intended to combat high inflation rates and help the Fed reach its goal inflation rate of 2%. Fed chair Jerome Powell stated the decision to increase the interest rate will have an impact sufficient to check inflation and avoid further rate hikes.

What the Increase Means for the Consumer

With this hike, central banks will increase what they charge for overnight lending. Consequently, the increase will affect consumer lending directly, leading to higher interest rates for mortgages, credit cards, auto loans, and even some student loans.

How Does the Increase Affect the Commercial Real Estate Market?

Interest rates always affect commercial real estate markets, whether they are being raised or lowered, but this increase is not likely to have a significant impact on the current market. Due to a lack of cash flow opportunities, however, investors can expect a dip in property values and slower growth fundamentals. Investors in existing loans who purchased rate cap protection undoubtedly are very pleased with having done so, but the current interest rate volatility makes the price of such protection discouragingly high for those now entering into new loans.

About Robinson Franzman LLP

Robinson Franzman LLP is a commercial real estate and finance law firm dedicated to assisting clients in capitalizing on opportunities and solving complex challenges. Robinson Franzman is based in Atlanta, Georgia, and serves clients across the United States in commercial real estate finance matters, commercial real estate acquisitions and dispositions, private equity fund formation, and general outside counsel matters for real estate investors, financial institutions, family offices, and private equity funds. Robinson is committed to providing the highest quality work product in the industry and immediate responsiveness to its clients’ needs.

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