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How interest rate increase may affect real estate

Commercial real estate investors and developers in California have probably heard about the Federal Reserve's decision to raise the interest rate. With the 25 basis point increase, the higher interest rate will likely have some effect on commercial real estate investments. Some investors worry that the higher interest rate could have a negative effect on commercial real estate investments because interest rates are sometimes tied to capitalization rates.

A researcher from the Commercial Real Estate Services Group says that he doesn't believe the interest rate increase will affect the market the way that most people think. CBRE predicts that the first change that investors will notice, and have likely noticed already, is a rise in short-term interest rates.

The interest rate increase will affect some markets more dramatically than others. CBRE says that real estate markets in cities like Boston, New York and Washington, D.C., are more susceptible to the impact of interest rate increases. Commercial real estate markets in cities that have rent growth and lower cap rate compression like Atlanta and Dallas will be less affected by rising interest rates. CBRE predicts that the Fed will eventually raise the interest rate by at least 100 basis points, and the impact on real estate markets will be greater.

People who have commercial real estate investments may want to meet with an attorney and discuss how rising interest rates might affect them. A commercial real estate attorney may also be able to help developers with various aspects of their business such as commercial lease negotiations and zoning variances. If a commercial real estate developer has disputes over construction, breach of contract or other issues, an attorney may be able to provide representation in negotiations and court hearings.

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