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What's the debt ceiling's impact on CRE? Yesterday Ballard Spahr's Tom Hauser told us uncertainty will result in a higher cost to capital, leading to slowed or suspended projects. (Can something that's already suspended get suspended again? Perhaps, wasn't that the plot of The Breakfast Club?)
Ballard Spahr, Tom Hauser, lending, debt ceiling, commercial real estate, 10 year Treasury, prices increase, high cost to capital
We snapped Tom at his 300 E Lombard St office. He tells us continued questions about the United States' ability to repay its loans will drive down demand for 10-year Treasuries, traditionally viewed as the ?gold standard? for investments. "Weak investor demand will result in increased Treasury yields, which trigger many financial vehicles," he says. "That means higher interest rates. This will constrain financial institutions' lending ability, and ultimately harm borrowers at all levels," Tom says. If a deal isn't reached, it could be catastrophic. ?It would set off a chain reaction and jeopardize any real estate recovery.?
As for how that plays out on a project-by-project basis, Tom tells us projects relying on federal funds may be at risk. ?Developers relying on state or local funding may be in a better position," he says. "State and municipal governments are legally required to operate under balanced budget, so hopefully any local development incentives have already been accounted for.? The crisis could have a long-term impact, Tom says. ?It's the law of unintended consequences. No one knows what the impact will be, but we will feel it for a period of time.?