CRE Market Books in Near-term Rate Hike


Commercial real estate executives, who have already booked in what’s widely expected to be a 25-basis point interest rate hike this year, are now trying to figure out what future rate increases will look like after the most recent Federal Open Market Committee meeting held earlier this week. “I think the actual impact on the ground will be minimal when rates do increase. It’s more a question of the pace and duration,” said Kevin Mahn, chief investment officer of Parsippany, N.J.-based investment management company SmartTrust.

The FOMC chose to keep the status quo at the meeting but indicated that this will change this year, with a rate increase expected in September or December based on the performance of the US economy. “[Federal Reserve chair] Janet Yellen went so far as to say that the economy can tolerate and is in need of higher rates but with second quarter GDP coming in lower than anticipated, the question is if it will be in September or December,” Mahn said.

The Fed’s activity from 2004 to 2006, when it raised rates 17 times in 25 basis point increments, could provide a blueprint for what will happen next. “A 25-basis point hike in September or December fits the storyline where the Federal Reserve feels like it can start to slowly remove itself from the economy from a stimulation standpoint,” Mahn said. “One question is will there be 25-basis point increases or will they wait to make more dramatic 50 or even 100-basis point hikes?” Another factor that could come into play is selling some of the roughly $3 trillion of Treasuries on its balance sheet, he added.

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