Browse Tag: Interest Rates

Refi Roundup: Ten Notable Refinance Deals This Month

As long as the Federal Reserve continues to hold down the cost of borrowed capital, the market to trade in old financing for better terms on commercial property remains hot. Nationally, here are ten notable refinance deals in commercial real estate. Some went to fixed-rate, some went to floating-rate, but all went to the closi one more time.

 

Fed Votes 7-3 For No Interest Rate Change

At its September meeting yesterday, the Federal Reserve Board noted one way and voted another.  The Fed voted 7-3 to leave its Federal Funds interest rate untouched at its low level, suggesting the commercial real estate national markets will not have to worry about escalating cost of capital — at least for now.

In a press release following the vote, the Fed cited a strengthening labor market plus a picking up of economic activity in the second half of the year as a justification for the vote. Inflation fears were addressed by noting the level remains under the Board’s long-run goal of 2%.

The Federal Funds Rate’s target was allowed to stand between 1/4 and 1/2 of 1%, despite the “case for a [rate] increase [strengthening]”:

Against this backdrop, the Committee decided to maintain the target range for the federal funds rate at 1/4 to 1/2 percent. The Committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives. The stance of monetary policy remains accommodative, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation.

In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. In light of the current shortfall of inflation from 2 percent, the Committee will carefully monitor actual and expected progress toward its inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.

Prime Rates Primed To Stay Put

The Federal Funds rate is deeply tied to the prime rates each commercial bank offers to its least risky borrowers, prime rates tracking more or less consistently at 3 percentage points above the Federal Funds rate. The next Federal Open Market Committee (FOMC) meeting where the issue of interest rates will be again considered is scheduled for November 2.

 

Fed Rate Raise Put Off In Wake Of Jobs Report?

The cost of money might not be going up after all. Signals from the Federal Reserve over the last quarter had been pointing to a raise in interest rates in September. But a new jobs report from the US Labor Department showed softer gains than were predicted. Now the signals point again to rates being left at their current low levels.

The issue was in the payroll numbers: although nonfarm employment rose for August, wage gains lagged behind projections, triggering a slide in the value of the dollar felt in currency markets around the world.

The present commercial real estate boom is greatly encouraged by heightened employment, and wages speak loudly to drive aggregate demand for multifamily housing, retail products and the industrial backchannels that produce and move those products. The hot national CRE market depends on jobs. But are the Labor Department’s August numbers on payrolls really reliable?

August Payroll Misses

An interesting pattern picked up by Bloomberg’s Lillian Karunungan shows that the Labor Department’s August payroll numbers have fallen short of expectations for five years running. In “Much Anticipated August Payrolls Have A History Of Misses,” she spells out that the DOL has produced a significant gap between predicted payroll levels and reported levels each August since 2011.

Summer doldrums? A glitch in the survey methodology? Hard to tell. But the above, plus other indicators of national slowdown are more than likely to prompt Fed Chairwoman Janet Yellen this month to leave the interest rates where they were all summer.

Get Your Commercial Real Estate Clients Off the Fence!

Welcome to Guest Blogger: Bruce Kaplan, Premier Commercial Realty, Lake-in-the-Hills, Illinois with his take on commercial real estate values:

I know I’m singing to the choir when talking about commercial real estate values over the last three years.  The culprit of their decline, unlike in the recession of 1979-81, is not interest rates.  Unemployment to the tune of 7.5 million jobs has taken out demand and, until recently, capital availability had all but dried up.  Vacancy rates for all commercial property types have soared and rents have plummeted.

While commodity prices have gone through the roof, commercial real estate prices are kicked around like a dog (not my dog), so it’s been painful.  Making it worse, circumstances are likely setting up an inflationary period in our near future.  That will force real estate prices to resume their normal upward trend.  If you can hold onto your commercial real estate long enough, it will provide you with a hedge against inflation.  If you don’t have any commercial real estate in your portfolio, you’ll lose out. 

What I am telling you is – all economic indicators suggest WE HAVE REACHED THE BOTTOM!  What I strongly suggest is – tell your clients.  We are crawling from the wreckage, albeit a slow ascent, but a positive number.  If you’ve been on the fence about urging your clients to buy or lease, make your move – now.  Waiting will cost you.  Not only will prices and rents be higher, but as seen in the Federal Reserve’s, “Interest Rate Forecast 2011-2012,” interest rates will also be going up.  How can I be so sure we’ve hit bottom and have nowhere to go but up?  I’m using 35 years in the business as a backdrop and my common sense.  It takes three components to construct a new commercial building – building materials, land and labor.  If building material prices go up (these are commodities) and the other two components stay the same, the total package price must go up. Traditionally, the cost to build (new construction) sets the upper limit of value for any real estate project.  When you combine higher prices with pent up demand, (natural in a recession) the table is set for a surge in prices.  Pent up demand is more potent when new construction halts for a period of time and no new commercial inventory is created.

If you have been sitting on the fence, now is the time to get off.  The good deals will never be better.