Seyfarth Shaw: Rising Rates Worry CRE Executives Most

Tucker, Michael mtucker@mba.org

February 23, 2017


Rising interest rates continue to dominate commercial real estate executives' concerns, reported law firm Seyfarth Shaw LLP, Chicago.

"With the Federal Reserve announcing its intention to raise interest rates multiple times in 2017, respondents again rank rising interest rates as their top concern," Seyfarth's second annual Real Estate Market Sentiment Survey said. "Notably, political change-over and tax policy rank fourth and fifth this year, overtaking maturing commercial mortgage-backed securities loans from the year before."

Seyfarth noted respondents are more hawkish (98 percent) about interest rate increases this year than last year (90 percent). More than three-quarters said they expect multiple rate increases in 2017. Most respondents--62 percent--said they expect two rate increases this year. Another 15 percent expect three or more. Just 2 percent of survey respondents said they anticipate no interest rate increases.

Survey respondents split evenly regarding how much higher interest rates can go before commercial real estate experiences a material adverse impact; 33 percent said the market can handle a 51 to 100 basis point increase while 32 percent cited 101 to 150 basis points.

The second-largest concern after interest rates was commercial real estate supply and demand issues, followed by U.S. banking regulations, including the Dodd-Frank Act.

Like last year, executives worry about the industry's ability to refinance record levels of maturing CMBS loans: 86 percent expressed concern about the industry's ability to refinance the CMBS debt that will mature this year, nearly matching 87 percent in 2016. Maturing CMBS loans ranked sixth on the executives' concern list.

Turning to politics, last year, Donald Trump was the clear front runner among commercial real estate executives, Seyfarth said. And more than two-thirds of respondents this year said the Trump Administration will have a "positive impact" on commercial real estate.

Survey respondents who believe that the Trump Administration will have a positive effect on CRE cited deregulation most frequently, followed closely by tax reform, the report said. "Notably, as the Administration poises to take on Dodd-Frank, many survey respondents single out its dismantling as a positive impact for the industry," Seyfarth said.

More than 80 percent of respondents called themselves unconcerned that an act of domestic terrorism will affect their projects, compared to 70 percent last year. It ranked ninth of the top ten concerns. Of the remaining 17 percent who expressed concern, most said they would consider their decision to buy, sell, capitalize and lend in response to such an incident.

Seyfarth surveyed 151 CRE executives including owners, developers, investors, asset managers, brokers, lenders and consultants in January for this report.

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