{"id":1004702727,"date":"2024-02-21T08:02:20","date_gmt":"2024-02-21T16:02:20","guid":{"rendered":"https:\/\/www.commercialsearch.com\/news\/?p=1004702727"},"modified":"2024-02-21T09:55:00","modified_gmt":"2024-02-21T17:55:00","slug":"why-cres-high-rate-environment-presents-opportunities-for-some","status":"publish","type":"post","link":"https:\/\/www.commercialsearch.com\/news\/why-cres-high-rate-environment-presents-opportunities-for-some\/","title":{"rendered":"Why High Interest Rates Present Opportunity for Some"},"content":{"rendered":"
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\"\"<\/figure><\/div>\n\n\n

Over the last two years, interest rates headed in one direction: up. Back in January 2022, the Federal Funds Effective Rate was 0.08 percent. Fast-forward to year-end 2023, and the rate was 5.33 percent. The question is less about the \u201cwhat\u201d and more about the \u201cwhy\u201d and the \u201chow.\u201d Specifically, why are rates rising, and more importantly, how does this impact commercial real estate investing?<\/p>\n\n\n\n\n\n

Why rising rates<\/strong>?<\/h2>\n\n\n\n

Interest rates have gone up because the Federal Reserve has been trying to curb inflation. Inflation sat at 8.2 percent in November of 2022, which was more than quadruple the Fed\u2019s target of 2.0 percent. So far, the Fed\u2019s strategy has worked. Consumer prices only went up a relatively mild 3.2 percent through October 2023, which is welcomed news for those waiting to see prices drop. However, higher interest rates can also bring good news for commercial real estate investment strategies.<\/p>\n\n\n\n

Rising rates and purchasing opportunities<\/strong><\/h2>\n\n\n\n

Rising interest rates can result in opportunities to purchase properties from distressed sellers\u2014 particularly those with variable interest rates. No one can foresee the future, so even prudent investors may have agreed to a variable rate and now find themselves unable to make their payments. Some property owners may be willing to part with their CRE asset for what they owe on their loan\u2014or maybe even less\u2014just to get it off their books. It may also be possible to find good deals in the foreclosure market as banks look to offload properties they\u2019ve reclaimed. At the same time, rising interest rates also make it easier to get better deals in the traditional CRE market because there may be less competition.<\/p>\n\n\n\n

Higher rates and negotiation opportunities<\/strong><\/h2>\n\n\n\n

When interest rates rise, fewer people compete for commercial properties, which puts an investor in a better position when it\u2019s time to negotiate prices. When interest rates were low, it cost much less to borrow money, which encouraged many buyers to make sizable offers on properties. Now that interest rates are higher, many of those investors are staying on the sidelines. Without several buyers vying for their property, sellers may be motivated to agree to a lower price. When in front of a motivated seller, a buyer has more power at the negotiating table.<\/p>\n\n\n\n

Rising interest rates as a hedging tool<\/strong><\/h2>\n\n\n\n

CRE owners may be able to realize better-than-average returns due to higher rental rates during an inflation-driven economy. As is the case in the current economy, interest rates rose because inflation was on the way up. When inflation rises, it often takes rental prices along with it. For instance, while inflation peaked in the summer of 2022, rental rates in many sectors of CRE have continued to grow. For CRE owners, this could mean short-term gains that offset other assets that may have sub-par performances during inflationary periods.<\/p>\n\n\n\n

While it\u2019s impossible to tell for certain if or when interest rates will reverse course, those investing in commercial real estate can take advantage of the opportunities this presents. If investors have the financing they need, now may be a good time to purchase CRE assets, especially if they can find good deals in the distressed or foreclosure market. With fewer buyers throwing their hats in the ring, it may be possible to negotiate better deals and build a more robust CRE portfolio.<\/p>\n\n\n\n

Josh Darby, vice president at Northmarq<\/a><\/em>.<\/p>\n\n\n","protected":false},"excerpt":{"rendered":"

Northmarq’s Josh Darby on the upsides of prohibitive borrowing costs.<\/p>\n","protected":false},"author":3486,"featured_media":1004702730,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[21684],"tags":[50380],"class_list":["post-1004702727","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-viewpoint","tag-northmarq"],"acf":[],"yoast_head":"\nWhy High Interest Rates Present Opportunity for Some - Commercial Property Executive<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.commercialsearch.com\/news\/why-cres-high-rate-environment-presents-opportunities-for-some\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Why High Interest Rates Present Opportunity for Some\" \/>\n<meta property=\"og:description\" content=\"Northmarq's Josh Darby on the upsides of prohibitive borrowing costs.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.commercialsearch.com\/news\/why-cres-high-rate-environment-presents-opportunities-for-some\/\" \/>\n<meta property=\"og:site_name\" content=\"Commercial Property Executive\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/CPExecutive\" \/>\n<meta property=\"article:published_time\" content=\"2024-02-21T16:02:20+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2024-02-21T17:55:00+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2024\/02\/Josh_Darby_2022_3x3-copy.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"800\" \/>\n\t<meta property=\"og:image:height\" content=\"657\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"Josh Darby\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:creator\" content=\"@cpexecutive\" \/>\n<meta name=\"twitter:site\" content=\"@cpexecutive\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"WebPage\",\"@id\":\"https:\/\/www.commercialsearch.com\/news\/why-cres-high-rate-environment-presents-opportunities-for-some\/\",\"url\":\"https:\/\/www.commercialsearch.com\/news\/why-cres-high-rate-environment-presents-opportunities-for-some\/\",\"name\":\"Why High Interest Rates Present Opportunity for Some - 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