Law Office of Henry B. LaTorraca Civil Trial Attorney

The link between commercial real estate and interest rates

California real estate developers are likely aware that the Federal Reserve chose to raise interest rates in March 2017, and they may also know that they may be raised two more times before the year ends. This means that rate levels may have an impact in the near-term results in the commercial real estate market. For some, higher rates mean that they aren't able to borrow as much money, which may put downward pressure on prices.

However, since higher rates indicate a stronger economy, there may be more of a demand for real estate. To further complicate matters, Federal Reserve Chairwoman Janet Yellen said that the most recent rate increase wasn't necessarily an indication of strong economic growth. Instead, she said that economic growth would be moderate over the next several years. In market conditions such as the ones that exist today, lenders tend to benefit.

In this particular market, lenders may not see as much of an upside as history suggests that they might. This is because new laws were passed in the aftermath of the Great Recession to prevent lending practices that may be excessively risky. One final variable could be the actions that President Trump takes to reduce regulations. If regulatory burdens are reduced on lenders, the market will have to see how well it can police itself.

Those who are looking to develop commercial real estate may wish to talk with legal counsel. An attorney can review the terms of proposed loans to see if there are any provisions that could cause problems in the future. An attorney can also assist with other matters such as title disputes and zoning issues.

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