Well done article, touching on the salient points of where commercial lending stands post election. This is just a partial but brings home the point of rising interest rates, uncertainty of business and banking policies and what a new administration will bring to US business. - Jerry Slusky
(REJournals) No one knows yet just what kind of president Donald Trump will be. But one immediate result of his election was a quick rise in interest rates. And that has already brought a change to way developers and investors are borrowing money to fund their commercial real estate developments and acquisitions.
Illinois Real Estate Journal recently spoke with a pair of Chicago-area commercial finance pros – Sue Blumberg, senior vice president and managing director in the Chicago office of NorthMarq Capital, and John Petrovski, managing director and head of U.S. commercial real estate lending with the Chicago office of BMO Harris Bank – about the steps that developers and investors are taking today to secure the financing for their projects.
Illinois Real Estate Journal: The presidential election is finally over. Have the results brought any – or will they bring any – changes to the commercial lending market in Chicago?
Sue Blumberg: The lending market has shifted a bit with the recent increase in interest rates. We are seeing a shift toward long-term planning versus short-term planning from borrowers. Even for properties that are in transition – they are being leased, under construction or in the planning stages – the rise of interest rates could affect them going forward. The plans of the developers and investors could change a bit depending on what happens with rates. That being said, those borrowers, those developers and investors who are familiar with real estate and who are long-term players, have been through cycles of higher interest rates before. They tend to be prepared for these kind of changes. There is no reason for concern on their part. There’s just more of a need for longer-term planning when rates go up.
John Petrovski: We’re moderately optimistic for 2017. We think that the U.S. economy will continue in the slow-growth mode. That’s a positive for commercial real estate. There are a few clouds on the horizon. We don’t yet know what the president-elect will mean for business and growth. That is unknown at this point.
IREJ: Were you surprised that interest rates after the election finally rose?
Blumberg: Not really. The way I see it, the rates didn’t rise solely because of the election. People expect there to be actual growth in the future. There has been actual growth in the economy. There has been growth in employment, wages and GDP. It feels like the Fed finally signaling a rise in interest rates is a good thing for the country. It is actually stabilizing. I think rates would have risen even without what happened in the election. It was time for a rise, and that should be thought of as a good thing.
Petrovski: We’re waiting to see what happens with interest rates in the long-term. Does the Fed see more inflation so that rates will rise faster? That has added a bit of uncertainty to real estate projects. So there are some clouds because of the uncertainty. Now, those clouds could become soft, puffy white clouds if everything turns out to be good. Or they could turn out to be grey storm clouds. We’re not sure yet.
IREJ: It might be a tough adjustment, though. I think people have gotten spoiled by these low rates.
Blumberg: Spoiled is right. It will take a bit of a lag time for everyone to swallow the rate increases. But, really, a 4.5 percent interest rate is really good. Deals should work at those rates.