Eventually, of course, the industry will feel the effects of the continued rate increases. But for now, expect lenders to remain busy.

Brace for Impact

Some industry participants are more affected by the rate increases than others. Construction lenders, for example, are generally having a tougher time underwriting deals. As a result of the rate increases, loans are becoming much harder to price, and made even more complex when additional economic uncertainty is factored in. Construction lenders are underwriting deals today for projects that won't be completed for another 18 months, so while there's been very consistent, deliberate interest rate hikes for now, there's no telling what the Fed will do down the line.

Another group that needs to be more aware of the interest rate environment is property owners—and possibly tenants. Based on the slow pace for increases thus far, there hasn't been a noticeable transfer of costs to tenants; however, if rates continue to rise, property owners may have to pass some of the costs on to tenants. One way property owners can navigate around this? Lock in long-term rates now.

Predicting the Unpredictable

How far will the Fed go?

While nothing is certain, the commercial mortgage industry needs to trust that the Fed will be smart and continue to be deliberate about its decisions. If the Fed begins to increase rates more than just a quarter-point, though, real impact will be felt across the industry—that includes government agencies and private lenders.

The good news is that the market has been preparing for this scenario. The next six to 12 months are likely to see more increases, but the industry has been watching these trends for a long time.

Ernie Katai is EVP and head of production at Berkadia. The views expressed here are the author's own.

SOUTHFIELD, MI—Earlier this month, the Fed announced another quarter-point increase to interest rates—a change that was widely anticipated. With further hikes expected throughout the course of 2017, how will the commercial real estate industry be impacted? And who will feel the effects most?

Outlook Positive Early On

Contrary to some expectations, recent interest rate hikes have not slowed down commercial mortgage lending. In fact, it's had quite the opposite effect—there's a rush to complete financing because rates should continue to trend up.

Prior to the increases, borrowers were sitting on floating rate loans with historically low interest rates. Across the industry, most believe that rates are going to continue to head north—which has generated an incredibly robust loan pipeline. Borrowers are now thinking about the future, making them more inclined to lock in low interest rates today.

Eventually, of course, the industry will feel the effects of the continued rate increases. But for now, expect lenders to remain busy.

Brace for Impact

Some industry participants are more affected by the rate increases than others. Construction lenders, for example, are generally having a tougher time underwriting deals. As a result of the rate increases, loans are becoming much harder to price, and made even more complex when additional economic uncertainty is factored in. Construction lenders are underwriting deals today for projects that won't be completed for another 18 months, so while there's been very consistent, deliberate interest rate hikes for now, there's no telling what the Fed will do down the line.

Another group that needs to be more aware of the interest rate environment is property owners—and possibly tenants. Based on the slow pace for increases thus far, there hasn't been a noticeable transfer of costs to tenants; however, if rates continue to rise, property owners may have to pass some of the costs on to tenants. One way property owners can navigate around this? Lock in long-term rates now.

Predicting the Unpredictable

How far will the Fed go?

While nothing is certain, the commercial mortgage industry needs to trust that the Fed will be smart and continue to be deliberate about its decisions. If the Fed begins to increase rates more than just a quarter-point, though, real impact will be felt across the industry—that includes government agencies and private lenders.

The good news is that the market has been preparing for this scenario. The next six to 12 months are likely to see more increases, but the industry has been watching these trends for a long time.

Ernie Katai is EVP and head of production at Berkadia. The views expressed here are the author's own.