How Will The Changing Market Affect Commercial Real Estate Loan Rates?

While the real estate market does have a tendency to lag behind the economic landscape as a whole, it does follow the same trends. With the relative ease of growth in property values over the past few years, the market for property has slowed down, but what does this mean for commercial real estate loan rates?

Real estate investors and commercial lenders have enjoyed a number of years of economic prosperity and growth that was actually quite unexpected after the bubble burst at the end of last decade. But certain indicators point to a turning of the market sometime in the near future. Depending on your placement in the market, your view point of this projected disruption will change, but one thing is certain: commercial real estate loan rates will be impacted.

One of the biggest factors will continue to be the role of the Federal Reserve, who controls the interest rates. If they continue to raise these rates, as they have done little by little over the past year, then the overall cost of commercial real estate will also begin to rise, cutting into profit margins. This could also have the trickle-down effect of raising rental rates, which will either drive away tenants or cause them to raise prices, which will further impact consumers.

To further complicate this, foreign markets have long been behind the United States in property value and rates. Many commercial real estate loan rates take this into account when determining asset value and property worth, in order to be a stabilizing factor in the market globally. However, if there is to be a great deal of increase in interest rates domestically, this will shift property values higher and has the potential of impacting the international real estate market.

With all of those factors of a possible increase in rates and the resulting fall out being taken into account, it is also important to recognize that from a big picture perspective, rates are now, and have been, at historic lows. The current real estate market has long been expecting a slight reversal of this fortunate market environment and borrowers can rest assured that there are fail-safes in place to prevent a cataclysmic disruption.

But with such high ratios of debt in the property market, won’t commercial real estate loan rates be the last to feel an economic correction?

This might be true, as the commercial real estate market is usually 6 months to a year behind the market in general, but that does not mean that there will be impact. There are a number of factors to consider in this, with inflation rates and interest rates being on two. But while the inevitable changes of the market might mean a period of uncertainty and chaos, it does not mean that commercial real estate loan rates will be so out of control that borrowers will not be able to weather the storm with proper planning and strategic decision making.

Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC  Private Hard Money Lender
Arizona Tel:  (623) 582-4444
Texas Tel:      (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701

About the Author:  Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

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