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Why Interest Rates Don't Matter to Commercial Real Estate

Want to get a jump-start on upcoming deals? Meet the major Atlanta players at one of our upcoming events!

The Federal Reserve kept long-term rates steady. But whether they go up or stay the same hardly matters to today's commercial real estate world, according to panelists at our Atlanta's Capital Markets event yesterday.

Why Interest Rates Don't Matter to Commercial Real Estate

"Rates and costs of capital impact profit. But demand determines success,” says Ackerman & Co CEO Kris Miller. “We're going to continue to have success, but that's all about demand. If we don't have demand, it doesn't matter where interest rates go.” RADCO's Norman Radow echoed those sentiments, saying all that matters is how much cash your investment produces. “Cap rates are just a number on a piece of paper,” he says, adding it's hard to predict where they'll be in the future. “What's real is cash. Cash doesn't lie.”

Why Interest Rates Don't Matter to Commercial Real Estate

Kris and Norman were part of our equity panel, which included NorthMarq Capital's Will James (who moderated), Paces Properties' Merritt Lancaster and Cortland Partners' Mike Altman. Merritt says skyrocketing apartment rents are adding to inflationary pressures. But his larger concern was that the Fed was at the end of its rope in tools it could use to spurn recessionary pressures. “I think generally things look good, but I think the Fed having no ammunition is sort of scary,” he says. 

Why Interest Rates Don't Matter to Commercial Real Estate

What's driving this new real estate boom is a historical demographic shift, plain and simple, Norman says. He cites a recent Atlanta Regional Commission prediction that forecasts some 8 million residents in metro Atlanta within 25 years. The fact that developers are only adding 14,000 units to the market is minimal in light of that. “Atlanta is becoming the New York of the South,” he says. “Atlanta should be a magnet. It should be a leader in this country. As long as our politics don't screw it up.”

Why Interest Rates Don't Matter to Commercial Real Estate

As for apartment investors, who've been chasing yield up until now, Mike says he expects a “great exhale,” as the new owners realize apartments are income-producing properties. “And then I think you're going to see a whole other wave” of buying among institutional investors. That's despite interest rates and economic problems in China, which he called “noise in the system” against the overall demographic wave.

Why Interest Rates Don't Matter to Commercial Real Estate

We met up with legendary retail developer and Halpern Enterprises founder Jack Halpern during our coffee schmooze. Jack says his firm is in the land buying mode lately, with recent assemblages purchased in Henry County, Dawsonville and even North Carolina. “We're going where we have interest from anchor tenants,” Jack says.