National Real Estate Investor
By Sebastian Obando
The Federal Reserve opted to cut interest rates for the third time this year at its October meeting, by a quarter percentage point, to a range of 1.50 to 1.75 percent. But while lower rates should sustain the positive momentum in the commercial real estate industry for now, there are concerns about whether the rate cuts were really needed, according to industry sources.
“I think for the commercial real estate market it's a good thing. If you got variable rates, the cost of borrowing goes down. If you're looking at buying, it never hurts to have the rate a little bit lower,” says J.C. de Ona, Miami-Dade market president for Centennial Bank. “That's going to bode well for that and for those that have been looking at possible refinancing.”
The Fed signaled that no further cuts would be coming this year unless the U.S. economy experiences a significant slowdown. At the same time, the Fed is “not going to raise rates unless they see signs of heavy inflation, so the chance of another Fed rate increase is very minimal,” according to David Pascale, senior vice president with George Smith Partners, a Los Angeles-based commercial real estate capital markets advisory firm.
But other industry sources say they are concerned about whether the Fed will find itself out of ammunition when the economy will really need it. The interest rate cuts will continue to increase the value of commercial real estate, according to Jay Rollins, managing principal at JCR Capital, an alternative investment management firm. However, “I think the main point is whether or not this cut is needed,” he adds. “My view is what the Fed [is] doing is they are artificially inflating hard assets... and depending on where you sit, that's either a positive or a negative.” Read more.