Categorizing it as a “midcycle adjustment” meant to bulwark against “downside risks,” Federal Reserve Chairman Jerome Powell announced the Federal Open Market Committee’s decision to cut the benchmark federal funds rate a quarter point to a range of 2.00 percent to 2.25 percent. It was the first interest rate reduction in the U.S. since December 2008—the height of the financial crisis, when the target rate was lowered to a range of 0.00 percent to 0.25 percent. The fed funds rate had been on a long, slow march upwards starting in December 2015, moving up nine times since then at a clip of a quarter point at a time.
That gradual rise had caused little more than a ripple in commercial real estate financing circles as the long recovery has largely proceeded unabated since the financial crisis and the Great Recession gutted the sector more than a decade ago.
And although there has been consensus for some time that this commercial real estate cycle is long past due for a dip, the move to reduce rates now comes before any serious issues have set in. That’s the context in which NREI conducted its latest survey on the state of commercial real estate financing. (The survey was completed shortly before the Fed officially cut rates, but many respondents indicated they were expecting such a move to occur.)
In all, respondents continue to have a favorable outlook, largely expecting stability when it comes to volumes and lending terms from all categories of commercial real estate lending sources.
In one sign of how good conditions remain, in answering what the biggest challenges were in financing commercial real estate properties, a respondent wrote, “One, making a choice between the 30 or so lenders fighting to the death over your $3 million deal. Two, deciding to close at your office or the attorney’s. Three, deciding whether or not to order in coffee and donuts or just stop at Dunkin’ on the way.”
Another echoed that sentiment, if a bit less cheekily, “I don’t think there will be many challenges. Based on what I’m seeing there is plenty of money in the marketplace that wants to be debt.”