Federal Reserve actions, their impact on the trajectory and shape of the term structure of interest rates, and the consequential impact on financial markets and the economy are the key questions in first quarter 2023. Regardless of one’s prediction about the duration of Fed intervention, rates are likely going higher, which will have a wide range of impacts on the commercial real estate market.

From a borrower’s most basic point of view, the prospect of higher interest rates in 2023 — added to the increases of 2022 — means higher borrowing costs, higher cap rates and lower property values. From a lender’s point of view, higher interest rates have caused many lenders to throttle back or suspend their plans to lend, substantially limiting the availability of credit, which adds further pressure to rates. Also, many lenders who are themselves borrowing from floating-rate leverage lines to fund loans to their borrowers have found themselves squeezed, both because of the