The Federal Reserve surprised no one by increasing the Effective Federal Funds Rate (EFFR) on May 3, 2023. While many news outlets point out that the Fed is indicating a potential pause on additional future rate hikes, experts tell Connect CRE that future messaging from the Fed will be important when it comes to commercial real estate lending.
Past Moves: Rapid Rate Hikes
The experts agreed that the rapid Fed rate hike history has generated – and continues to generate – deep uncertainties in the marketplace. Despite the rapid rate increases, “inflation remains persistently high,” said Brook Scardina, managing partner, capital markets and investments with Oak Real Estate Partners. These higher rates, in tandem with the systemic risk involved with regional banks “are expected to result in a further tightening of financial credit conditions,” Scardina said.
Larry Jacobson agreed with the assessment, noting that banks, in general, will continue to be conservative in underwriting real estate deals over the next several months. However, “availability to capital will be a function of asset class,” said Jacobson, who is president of Jacobson Equities.
