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Commercial Assets Feel Pinch of Climbing Interest Rates and Inflation

By Erik Sherman
July 01, 2022

A whammy: Inflation revs up the acceleration engine and, as a response, the Fed makes the biggest single hike in interest rates — 75 basis points — in four decades, with the promise of more to come. The changes in monetary policy are causing rising issues for capital markets and financing for commercial real estate, according to a report from Marcus & Millichap.

"The higher-than-anticipated 75 basis point June bump in the federal funds rate, and guidance of a similar move in July, have financiers re-evaluating their offerings," the report says. "Lenders that benchmark to credit markets, including CMBS and life insurance companies, may begin to push their spreads and their quoted rates higher. Banks and other balance sheet lenders may hold the line a bit longer, especially for borrowers they have a strong relationship with."

But the future, at least near-term, is clear. Lending rates are going higher and that means challenges for investors and developers.

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