The Federal Reserve surprised no one when it increased the Effective Federal Funds Rate (EFFR) on May 3, 2023. While news outlets point out that the Fed is indicating a potential pause on additional future rate hikes, experts in commercial real estate lending suggest that future messaging from the Fed will be important.
Past Moves: Rapid Rate Hikes
Brook Scardina, managing partner of capital markets and investments with Oak Real Estate Partners noted that rapid rate increases have generated – and continue to generate – deep uncertainties in the marketplace. Despite these higher rates, inflation remains persistently high according to Scardina. These higher rates are expected to result in further tightening of financial credit conditions as well. Larry Jacobson agreed with this assessment noting banks will remain conservative when underwriting real estate deals over coming months; availability of capital being a function of asset class however.
The Future Messaging: A Potential Pause? Adam Weissburg suggested lenders would be reluctant until then but need clarity from rate increases for appropriate underwriting decisions while William James co-founding principal at Bandon Capital Advisors pointed out how language employed by Fed providing guidance for potential cuts or hikes could impact investor sentiment & CRE transaction volume later this year or next year significantly . Larry Jacobson added what an actual pause might mean – positive effects on lending & investor sentiment according to Noel Liston managing broker at Core Industrial Realty who also highlighted owners/operators need clarity before effectively navigating market place . Impacts Of A Rate Hike Pause Stable rates would help investors get better handle cost wise but it’d be mistake assuming immediate certainties follow , cautioned Liston . Brook Scardina anticipates private lenders benefiting more deal flow ,higher interest & less competition while William James noted life company still targeting record years deploying ample capital moderately leveraged deals strong sponsorship .
