Lets talk interest rates and commercial real estate
Well, the fed is making splashes again... I think it would be a good opportunity to talk rates and their impact in the near to mid term future. Lets assume rates do start to go up in June.... If your a broker, what asset class do you want to be in the business of brokering and what would you avoid? Clearly NNN will take the first hit... but what CRE assets will fare the best and are there any asset classes that would even trade more in a higher rate environment?? Thanks...
[{"id": "cpkzeyx", "text": "How can brokers make a positive out of a negative and take advantage of higher rates? is there a way? Also any comments relating to rates and commercial real estate is welcome...\n\nAn example would be using the threat of rates raising to talk to our clients about it being a good time to sell because the market is going to change and it will be harder to sell possibly when rates go up..... But im thinking more along the lines of once rates already start moving.... then what do we say/do?", "replies": [{"id": "cple0d5", "text": "Higher rates imply rising inflation. That means rents should be rising, and the economy should be improving. Vacancy rates are also dropping (where I am) because of lack of construction.\n\nSo there are lots of positive factors that will help soften the blow of rising interest rates. ", "replies": [], "depth": 2}, {"id": "cplqgou", "text": "So I guess that's how brokers work...convince the clients of this and that as opposed to telling the true ramifications of rising interest rates?  I am not a broker...I am a potential client and super wary of real estate agents.  ", "replies": [{"id": "cpm1feo", "text": "&gt; So I guess that's how ***some*** brokers work", "replies": [], "depth": 3}, {"id": "cpq9o70", "text": "you right, wrong approach. but if you working with a bunch of tier 1 guys and you think they are missing the top then its different than if your working with a local small time player or a mom and pop who need guidance.... You have to adjust from transactional to advisory depending on what kind of client it is. ", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "cpkzgox", "text": "Not sure I'd go as far as to say I want to be in the business of brokering them for this reason specifically, but anything with short term leases.  Apartments are already hit to the fucking ground and then some so I don't see this changing the actual spread on them much.  People might gamble more on the smaller strips/office properties that primarily do 3-5 year type smaller foot print leases.  They should be able to capture rent increases from inflation faster.  \n\nVacant/high vacancy properties may be worth looking at harder for that reason, but carrying costs will also suck more.\n\nIn the mid term future I'm really not convinced we will see a large enough change in rates to break the status quo.  Until is a bit more evident or we start seeing it I don't think most are drastically changing their positions just because of this one thing.  \n\nI think the bigger thing to look at is general inflation, if we can raise some rents &amp; get some property appreciation a lot more properties will become salable and a lot of peoples problems will go away.  Of course at the same time, this will create valuation problems for the NNN's and some others without good increases.  \n\nedit-  I guess where I'm going with that, is I expect it to be one factor most investors take into consideration.  Until we really see it happening I don't see it being a driving force in a lot of investors plans.  Though I'm sure certain ones will differ and this will be much more important to them.", "replies": [{"id": "cpkzuaj", "text": "Good info, Ive actually been watching the strip centers/ private capital owned shopping centers closely lately, and adding them to my data base so that is reassuring to me. Very Good points made, thanks. \n", "replies": [], "depth": 2}, {"id": "cpkzxhn", "text": "Question/Thought: Since inflation and interest rates tend to have an inverse relationship...How will that play into the theory that people will move toward assets that an capture increasing rents due to inflation? If at all...", "replies": [{"id": "cpl0kc4", "text": "In the short term I don't know.  It would seem its not necessarily an inverse relationship if you don't keep rates artificially low.  They should generally track each other and historically do.  If you are asking if you spike rates what happens to inflation over the next 12 months, then yeah that probably is inverse.  If you let rates normalize though over the next 10 years I think something different happens with inflation.  \n\nI don't know how the general economy vs the real estate economy will interact exactly here.  Or what time frame all this plays out in.\n\nGood question though.  \n\nOne thing we havn't discussed is theres a lot of cash on the side lines, really being held at near minimal rates but with high liquidity because the less liquid returns are so shitty in the near term (at least in their opinions).  If you rates go up I don't know how much compression will change when this demand comes out, what what this demand will be for.  Its going to screw with supply too.  If you add a point or so to rates a lot of these NNN deals being talked about are going to be untradeable for a long term without someone taking a loss. ", "replies": [{"id": "cpl2219", "text": "Very interesting, i like where your heads at. And I agree on the NNN guys they are locked in, but I think they know that and have very long time horizons, likely foreign money ,with the occasional 10-31 exchanger who came up on the end of his identification period time frame and had to move quick and wanted stay in NNN, also a lot of the California guys too for some reason.  \n\nAs far as what the demand will be for... I wouldn't imagine real estate? you will always have the upside guys and the players but where will the yield chasers go. My limited knowledge of finance leads me to believe if rates go up new investment opportunities open up in new places outside of the more entrepreneurial  fields like real estate/ starting businesses, not sure if that is really how it works though...", "replies": [], "depth": 4}], "depth": 3}, {"id": "cpl2sts", "text": "http://www.economicshelp.org/blog/wp-content/uploads/2012/01/inflation-interest-rates-1945-2011.png\n\ntake a look at that.  The question isn't all about what happens when you raise interest rates, we kinda have a lot of history on that.  The real interesting question right now is what happens when you raise them after crashing them damn near 0 and held them there for years to prop up the economy.  There is a lot more theory in that question.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "cpl7fky", "text": "Over the next three years, more than $300 billion in Conduit CMBS loan balance will mature. That\u2019s  more than 2.5 times the amount that matured from 2012 to 2014.  \n\nI thinking that unless there is a large change in the yield curve, even if transaction volume slows down, there is going to be plenty of financing work to be done.  \n\nSpeaking of which, do any of you focus on capital markets, or are you all transactional? ", "replies": [], "depth": 1}, {"id": "cpnhqo8", "text": "If your are brokering real property, you could line up to take on BOV assignments with the possibility of doing bank deals. When fed funds starts it's ascent, there will be opportunity for brokers and INvestors alike. ", "replies": [{"id": "cpnw2o7", "text": "good thinking", "replies": [], "depth": 2}], "depth": 1}]