March 10, 2017
J.P. Morgan Chase’s Al Brooks is a respected voice of reason, surrounded by uncertainty in CRE investment markets. It would be difficult to argue against his latest musings on the merits of 200- to 300-basis-points-higher interest rates.
He opines, that fears of upcoming hikes are largely unwarranted. Brooks believes normalizing rates is actually good for CRE. First, it means the “incredibly cautious” money policy group is “confident that the economy can take it.”
Second, raising artificially low rates should produce higher rents and sale prices. Last, increases will keep oversupply in check, since borrowers tend “to be more prudent” with seeking financing on new construction.
Given historical rates, if current minimal increases are the deal breaker, it likely was not a smart investment.
One of the more interesting tactics in Brooks’ playbook is being hypervigilant about markets in which to invest, down to a neighborhood-by-neighborhood, street-by-street level.