The Dec. 16 Federal Reserve announcement that interest rates would be increased by 25 basis points received a mixed response from commercial real estate experts in California and around the country. The Fed’s decision had been predicted by many for some time, and media reports indicate that it was only poor job growth in November that prevented Fed Chair Janet Yellen from announcing the move sooner. Many economic analysts expect additional rate increases in the coming years.
While a 25 basis point rate hike still leaves interest rates at or below a half of 1 percent, the increase in borrowing costs can be significant when commercial real estate developments worth many millions of dollars are involved. The increase also comes at an inopportune time for the commercial property market as a wave of mortgage-backed securities scheduled to mature in the coming months is expected to lead to a flood of refinancing applications.
While some financial analysts say that this will make banks more choosy and borrowing more difficult, others believe that stricter lending criteria will be good for the commercial real estate market as it will make another speculation-fueled property bubble less likely. They also say that a period of slimmer margins could benefit property developers for years to come by forcing them to cut costs and become more efficient.
Analysts have also predicted that commercial property will become increasingly attractive to investors concerned about falling fuel prices and slowing rates of growth in Asia. Property investment is often seen as a secure haven in uncertain times, but it is not without pitfalls for the unprepared. An experienced attorney can review a proposed venture and bring possible issues, such as land use, zoning and contractual disputes, to the attention of clients who are investors or developers.