Real Estate Capital USA
August 2, 2022
The Federal Reserve’s well-publicized program of interest rate hikes – including a move Wednesday to implement another 75 basis point increase – have created more challenges for commercial real estate debt markets participants in the last three to five months more than anything else happening across the landscape.
Carl Chang, chairman of the Federal Reserve Bank of San Francisco’s Los Angeles branch board and founder of Santa Margarita, California-based Kairos Investment Management, said that while expected, the rate increases have led many lenders to hit pause.
“Everybody is being cautious especially balance sheet lenders, because of the market uncertainty and so most are taking a defensive posture,” Change said. “We have several large banking relationships and they’re only considering new loans with their tier one borrowers, not considering doing any new business at the moment.”
Chang said preparations for future rate hikes will resolve around refinancing, pricing adjustments and sector rebalancing. In scenarios where there may be debt maturity issues on a given asset or portfolio, he said lenders and borrowers have to get in front of it now given the difficulty and cash required to refinance.
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