The Federal Reserve opted to keep the federal funds rate range stable at 5.25-5.5 percent at its September meeting, but market participants do not believe the move will lead to a near-term increase in transaction volume in the commercial real estate debt and equity markets.
The September 20 meeting came amid cautious hope of indication that the US central bank is at or near the end of its current cycle of rate increases, said Ran Eliasaf, founder and managing partner of New York-based real estate credit platform Northwind Group.
“It also feels like we’re closer to the end of rate increases. The real question is how long will rates stay at this level?” he said. In Eliasaf’s view, rates will be higher for longer and the market will have to keep adjusting to that reality. “We have to remember that today’s rates are really the normal rates, not the extremely low ones we have seen.”
Regardless of the Federal Reserve’s decision to keep rates stable, transaction volume is not likely to return to previous levels given the higher interest rate environment, said Bryan Kenny, president and principal at Los Angeles-based manager Bandon Capital Advisors.
“While cap rates are increasing, all-in rates on debt still result in negative leverage which is not attractive to most buyers,” Kenny added.
