The Federal Reserve surprised no one by increasing the Effective Federal Funds Rate (EFFR) on May 3, 2023. While many news outlets point out that the Fed is indicating a potential pause on additional future rate hikes, experts agree that future messaging from the Fed will be important when it comes to commercial real estate lending. Rapid rate hikes have generated deep uncertainties in the marketplace and inflation remains persistently high. This has resulted in a tightening of financial credit conditions for regional banks and lenders are expected to remain conservative when underwriting real estate deals over coming months. Availability of capital will depend upon asset class however, so understanding what language is used by the Fed when providing guidance for potential rate hikes or cuts later this year or next year could have an impact on investor sentiment and CRE transaction volume in 2023.
A pause would likely mean positive effects on lending as well as investor sentiment but until then lenders need clarity regarding rates increases before making appropriate underwriting decisions; stability would help investors get better handle of cost of capital too but it’s not certain whether pausing rate hike increases will lead to immediate certainties within capital arena either – owners/operators must still see where long-term trends are headed so they can effectively navigate market place accordingly . Private real estate lenders may benefit from more deal flow due to higher interest rates & less competition while life company lenders still target record years for volume & deploy ample capital towards moderately leveraged deals with strong sponsorship .
