Lower interest rates may seem like a wonderful development for the commercial real estate marketplace. In fact, it is a little more complicated than that. Understanding the impact of lower interest rates on the availability of funding and the overall real estate marketplace is critical to ensure that you make the right moves when investing in this sector. Here are some of the most important facts to keep in mind when considering the impact of lower interest rates on your ongoing investment strategies.
Why the Federal Reserve Cuts Interest Rates
In general, the Federal Reserve is responsible for making adjustments to the rates paid by banks to borrow money. The Fed usually cuts these interest rates to stimulate increased growth in the economy. Lower interest rates can create increased demand for lending arrangements among commercial real estate (CRE) investors. When interest rates dip too low, however, the incentive for lenders to provide funding for applicants is significantly reduced. This can make it difficult for some investors, construction companies and other borrowers to obtain the right lending arrangements for their needs.
Balancing Risk and Reward in the Lending Marketplace
Banks and traditional lenders must maintain a careful balancing act to ensure they make loans that will produce revenues for their institution and that they receive fair interest rates for the degree of risk they assume in making these loans. In the real estate market, most loans use properties as collateral. When interest rates fall to extremely low levels, banks may scrutinize the value of these properties much more closely.
Another factor that may play a role in the ability of CRE investors to obtain funding is the credit history of these individuals and businesses. Lenders may charge significantly higher rates for borrowers who have a less-than-perfect credit record. This can negate the perceived value of lower interest rates and can make it more difficult for these individuals to obtain the right credit arrangements for their proposed acquisitions in the real estate marketplace.
The Benefits of Alternative Lenders for Commercial Real Estate Transactions
Regardless of the position of the prime rate for commercial interest, working with an alternative lending company is often a solid choice for investors looking for funding on a short-term basis. These lenders can offer greater flexibility and an improved chance of success for your application. When time is of critical importance, alternative lending companies also hold the advantage with faster processing and rapid disbursement of funds to allow investors to strike while the iron is hot.
At ReProp Financial, we provide direct lending solutions for CRE acquisitions throughout the western part of the United States. Our team specializes in delivering construction lending, commercial loans and certain types of residential property loans designed and customized for our clients. We work with you to determine the most practical and positive solutions for your lending needs. Whether you require a 12-month term or 60-month bridge financing option, our team has the experience and the knowledge needed to deliver the right solutions for your needs. Call us today at 1-800-444-2948 to request more information or to submit a loan to us. We look forward to the opportunity to serve you.