Going up: Interest rates are rising. What will that do to real estate in the foreseeable future?
Among institutional investors, interest rate increases generate a lot of interest, but even more worry and concern. In fact, rising interest rates are overwhelmingly the main concern among commercial real estate executives, according to Seyfarth Shaw’s most recent Real Estate Market Sentiment Survey. So investors were paying close attention when the Federal Open Market Committee, under new Federal Reserve Chairman Jerome Powell, announced a 25 basis point increase after its March 21 meeting. And the Fed stated its intention to increase rates at least two more times in 2018 and three times in 2019, up from its previous intention to raise rates only twice next year.
We are clearly in a rising interest-rate environment, and the Fed has indicated its willingness to keep raising rates even if inflation doesn’t reach a 2 percent policy target. How much of this investor concern is justified? What might be the impact of rising rates on real estate valuations, cap rates and lendin