Rising Interest Rates: The Calm Before the Storm?

In a predominantly steady economy, real estate players have been gearing up for the next phase in the cycle for a while now. Borrowers and lenders alike are watching closely as the Federal Open Market Committee continues to raise short-term interest rates.

The Fed first hiked up rates in March and then again in June—from 1.75 to 2 percent—and according to Marc Suarez, director with Hunt Real Estate Capital, “There has been talk about the Fed raising rates every three months. The Fed has penciled in two more rate hikes this year—we should expect one more for sure in my opinion.” However, despite rising rates, the yield curve has flattened, Suarez noted.

As cap rates start to move higher as well, in strong markets such as Florida “most of the deals we are seeing are debt service coverage ratio-constrained (DSCR) at the values,” Suarez continued, explaining that Hunt Real Estate Capital has had success with early rate locks and by helping borrowers keep track of stabilization of property financials, as DSCR-constrained proceeds are rate-sensitive. Multifamily borrowers are still focused on value-add deals, showing no signs of slowing down, Suarez pointed out.

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