The Fed finally reduced interest rates and inflation appears to be coming down. However, with an election coming in November, there is still plenty of uncertainty to influence the economy and interest rates. Please enjoy our quarterly newsletter discussing these themes, their impact on your business, and more.
COMMERCIAL REAL ESTATE NEWS
How Interest Rate Cuts Could Impact Commercial Real Estate
The Fed began its easing cycle with the first rate cut since 2020. Here’s how it could impact multifamily real estate investors.”
Article courtesy of J.P.Morgan Insights – Full Article Here
Housing Costs Money
In recent political debates about how to resolve our national housing crisis—putting the blame on “greedy corporate landlords,” pushing for “top down” solutions or advocating for additional costly regulations—so many ignore the fact that housing costs money. Where the money comes from is often an afterthought or given virtually no thought at all.
Article courtesy of National Multifamily Housing Council – Full Article Here
The Wave is Here: Troubled CRE Loans, Banks, Borrowers, and Investor Opportunities
The commercial real estate (CRE) market is bracing for a record number of maturing loans and a surge in defaults. Property owners that have balloon repayment loans coming due are struggling to refinance at today’s higher rates. This is “forcing” borrowers to either: inject new equity, raise preferred equity to bridge a new loan, or negotiate a loan workout. If those options aren’t possible, borrowers face selling the asset or foreclosure by the lender.
Article courtesy of Matthews Real Estate Investment Services – Full Article Here
Economic Data
Borrowing Trends
Potential Impacts of Harris and Trump on Commercial Real Estate, Lending, and Interest Rates
The 2024 U.S. presidential election between Kamala Harris and Donald Trump presents two distinct visions for the economy, with potentially significant implications for commercial real estate, lending, and interest rates.
Kamala Harris: In the realm of commercial real estate, Harris proposes an ambitious plan to build, preserve, or rehabilitate 3 million homes, which could significantly boost the affordable housing supply. This initiative has the potential to reshape the multi-family sector and impact property values in urban areas. Additionally, Harris is likely to support increased federal spending on infrastructure, which could boost demand for commercial properties in urban areas. However, she may also push for stricter environmental regulations, potentially leading to higher costs for commercial property development and retrofitting.
Regarding commercial lending, Harris advocates for a $50,000 tax credit for small businesses, which could stimulate demand for commercial real estate and increase the need for commercial lending. She is expected to maintain or strengthen Dodd-Frank regulations, potentially leading to more conservative lending practices for larger institutions. Furthermore, Harris may support additional initiatives to increase access to capital for small businesses and underserved communities, expanding the commercial lending market.
Harris’s policies could have significant implications for interest rates and inflation. Her ambitious housing plan and infrastructure spending could be inflationary, potentially leading to higher interest rates. The small business tax credit and increased government spending might stimulate economic activity, further contributing to inflationary pressures. These factors could push the Federal Reserve to raise interest rates more aggressively, potentially increasing borrowing costs for commercial real estate loans.
Donald Trump: Trump’s approach to commercial real estate is likely to focus on deregulation, potentially streamlining approval processes for commercial development. He may continue to support Opportunity Zones, incentivizing investment in designated areas. However, Trump could also implement stricter immigration policies, potentially impacting labor costs and availability in construction.
In terms of commercial lending, Trump may seek to further roll back financial regulations, potentially leading to more aggressive lending practices. He could push for lower capital requirements for banks, potentially increasing available credit for commercial real estate.
Regarding interest rates and inflation, Trump has historically favored lower interest rates and may pressure the Federal Reserve for accommodative monetary policy. However, his trade policies, including potential tariffs, could lead to higher prices for imported goods, contributing to inflation. Deregulation in the financial sector might lead to increased lending and economic activity, potentially fueling inflation. The combination of inflationary pressures and a push for low interest rates could create tension with the Federal Reserve, potentially leading to market uncertainty and volatility in borrowing rates.
Both Harris and Trump present policies that could be inflationary, albeit through different mechanisms. Harris’s approach of increased government spending on housing and infrastructure, coupled with small business support, could stimulate demand-pull inflation. This might necessitate higher interest rates to maintain price stability, potentially increasing borrowing costs for commercial real estate projects.
Trump’s policies, particularly around trade and financial deregulation, could lead to cost-push inflation and increased lending activity. His preference for low interest rates might conflict with the need to control inflation, potentially leading to market uncertainty and fluctuating borrowing rates.
The impact on commercial real estate and lending will largely depend on how these inflationary pressures play out and how the Federal Reserve responds. Under Harris, we might see a more predictable but potentially higher interest rate environment. Trump’s approach could lead to initially lower rates but with more volatility and uncertainty in the longer term. Investors and developers in the commercial real estate sector will need to carefully consider these potential inflationary pressures and interest rate scenarios in their long-term planning and risk assessment strategies. The chosen path will have far-reaching implications for the commercial real estate landscape, affecting everything from development costs and property valuations to lending practices and investment returns.
This article was prepared with the help of AI.
Recently Funded Transactions
Here are some of the opportunities we assisted our clients with last quarter:
- $4,970,000 Flagged Hotel Purchase – Pasco, WA – 70.00% LTV
- $960,000 Single Tenant Office Purchase – Yakima, WA – 76.80% LTV
- $2,500,000 Retail Refi – 59.00% LTV
Contact us to learn how we can help you with your commercial property financing.
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