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Commercial Real Estate Execs Overwhelmingly Predict A June Rate Hike

Economists overwhelmingly predict an interest rate hike by the Federal Open Market Committee at its next meeting on June 12-13, with the market pricing in a 100% probability, Cushman & Wakefield's Steven Kohn and Christopher Moyer wrote recently in their Equity, Debt & Structured Finance Capital Markets update.

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Fed Chairman Jerome Powell

Commercial real estate executives are a bit worried about the prospect of future rate hikes, though not particularly panicked. According to Seyfarth Shaw's Real Estate Market Sentiment Survey published earlier this year, executives cited rising interest rates once again as their lead concern for the industry this year.

Almost all of the surveyed respondents — 98% — expected interest rate increases from the Fed in 2018, with one-third of real estate executives projecting three increases over the next 12 months.

Multiple interest rate increases will start to have an adverse impact on the real estate market, according to the respondents, though the impact won't be immediate.

"Sixty-three percent of commercial real estate executives believe the industry can stomach an increase of 51 to 150 basis points," Seyfarth Shaw said.

If the federal funds rate is bumped up 25 basis points to between 1.75% and 2% this month, that would imply Libor of around 2.15%, Cushman & Wakefield said. The last time either of those rates were at those levels was in 2008, when they were on their way down in response to the crisis that year.

As for further rate increases this year, the next one is projected to be in September, with a 75% probability, according to Kohn and Moyer. The market is nearly evenly split on the possibility of a final 2018 hike in December. 

Kohn and Moyer also point out that the current economic expansion is now the second-longest in history at 107 months, since the economy bottomed out in June 2009. Only the 1990s expansion of 120 months was longer. Even so, no recession is expected to hit in the next 12 months, and the current expansion might last through 2020.