Experienced Kansas City Construction Law Firm

Interest rate hikes could hamper commercial real estate

On Behalf of | Jan 4, 2016 | Commercial Real Estate

Commercial real estate owners and developers in Kansas may be concerned with the news that the Federal Reserve elected to raise interest rates. The hike, which is predicted to result in a short-term increase of 25 basis points, has some analysts worried that commercial real estate growth may falter in the face of surging fiscal burdens. Other experts, however, say that the forthcoming changes won’t have a major effect over the long term, even though they believe that the Fed will eventually raise interest rates by around 100 basis points.

According to some optimists, there’s not much reason for concern. Although observers point out that heightened interest rates can in some cases affect capitalization rates, those with positive outlooks maintained that such effects wouldn’t last forever and that the worst of the interest rate increases had already occurred.

On the other hand, the same analysts admitted that different markets will experience unique impacts due to the same interest rate hikes. Atlanta, Dallas and similar cites, for instance, are predicted not to suffer greatly because of their rent growth and less-significant capitalization rate compression. Boston, New York and Washington, D.C., on the other hand, are believed to be particularly vulnerable to the changes.

Companies and individuals that engage in commercial development may find that the viability of their real estate projects depends on more than just their drive to succeed. As major economic changes transform the national landscape, regional and local investment markets are also impacted. Federal Reserve interest rate hikes can play a major role in the profitability of forthcoming agreements and ongoing projects alike. When drafting a purchase agreement, some developers find it advisable to learn about the different legal methods they can employ to protect their interests.