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Magic 8 Ball Answers Question:
How will Rising Interest Rates Impact the Commercial Real Estate Finance Market?

Allison Karavos
April 4, 2021

Many people are familiar with the classic Magic 8 Ball toy that told your fortune or could provide positive, neutral or negative advice on a particular topic.  Having your future predicted was as simple as asking a question and then turning the ball over to read the answer.  If you didn’t like the answer provided (there were only 20 possible answers after all), you could shake or shock the Magic 8 Ball into hopefully providing a more positive outlook.  If only we could use the Magic 8 Ball to predict how the Commercial Real Estate Finance (CREF) market will respond if the Federal Reserve continues to raise interest rates.

Magic 8 Ball answers:  Concentrate and ask again.

The recent Commercial Real Estate Finance (CREF) Outlook Survey conducted by the Mortgage Bankers Association (MBA) validates that commercial lenders anticipate the demand for new commercial and multifamily mortgages will remain strong in 2016.  On the origination side of the lending coin, MBA anticipates growth in 2016 to reach the to $511 billion mark.

Magic 8 Ball answers:  Outlook good.

Overall, the CREF market performed well in 2015 aided by lower interest rates and higher rates of return on commercial real estate. The economy has grown healthier and inflation has been lower.  But with the Federal Reserve’s recent interest rate hike in December 2015 after almost a decade, and the possibility of more hikes to come, will the remainder of 2016 remain as rosy for commercial real estate lending?

Magic 8 Ball answers:  Ask again later.

At the recent MBA CREF/Multifamily Housing Convention & Expo 2016 held last month, MBA experts predicted that the Federal Reserve will in fact raise rates further in 2016 and possibly into 2017.  When rates will rise and by what percentage is not something the Magic 8 Ball can tell us unfortunately.

Magic 8 Ball answers:  Cannot predict now.

Higher interest rates could impact lender cash flows and threaten to devalue assets.  A spike in rates could have a ripple effect for borrowers, increasing commercial mortgage loan rates therefore threatening to shrink the scope of commercial and multifamily property inventory available within budget.   The appetite for new development projects and commercial loan requests may also decline as a result.

Magic 8 Ball answers: Outlook not so good.

Many lending institutions are already suffering from a high degree of manual processing that restricts their ability to respond to market movement and scale up their commercial real estate and mortgage origination business.  Lack of an integrated technology also limits the transparency delivered by unified, automated and flexible financial analysis and risk rating.  Magic 8 Ball answers: Reply hazy try again.

Commercial real estate lenders operating on a single, scalable origination platform today are better prepared to respond to market changes more quickly and efficiently tomorrow.   Savvy lenders with the heightened surveillance capabilities and sound data processing across complex commercial loan origination and multi-asset portfolio management however will be able to predict their own future more accurately than the Magic 8 Ball ever could.

Magic 8 Ball answers:  Signs point to yes.

Is your institution prepared to navigate potential interest rate hikes or will you find yourself looking to the proverbial Magic 8 Ball for answers?

Magic 8 Ball answers:  Don’t limit your lending business growth.


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