Lenders and borrowers in the US real estate debt market should embrace historically low interest rates, as they will continue to hover near zero for the foreseeable future. That was the sentiment several real estate finance managers and directors voiced at the Information Management Network (IMN) Real Estate CFO Forum this week.
“With interest rates practically near zero for going on eight years, financing debt out there is scary, but the new normal is abnormal,” said Nilesh Bubna, CFO at Longpoint Realty Partners investment firm, speaking on a panel to a packed conference room at the New York Marriott Downtown. He added that a borrower should be thankful to secure a fixed rate loan with a debt ratio in the 1.7 to 3.25 percent range today, as rates are unlikely to change soon.
Berkeley Hynes, director at Deutsche Bank, said that the Federal Reserve will likely only raise interest rates when the US economy shows signs of a significant uptick in inflation, which Hynes himself does not see happening. Some panelists agreed that the Fed will not likely touch interest rates until December, and even then, not by much.
These statements come the same week that the central bank announced it will maintain the 0.25 to 0.5 yield range for US Treasury bonds. Though the rate of inflation in the US has continued to fall below the Fed’s 2 percent target, more economic data needs to be assessed before raising rates, the bank stated. The Fed set the current rate last December, the first hike in nearly 10 years, up from 0 to 0.25 percent.
“In light of the current shortfall of inflation from 2 percent, the Committee will carefully monitor actual and expected progress toward its inflation goal,” read the announcement. “The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate.”
Hynes added that both presidential candidates have fiscal plans that do not indicate a willingness to turn around the Fed’s current macroeconomic, interest rate trajectory, and “that’s a good thing”. Other panelists pointed out that the continuation of low interest rates will attract more capital to US Treasury notes and real estate debt due to volatile global markets and unrest.