M id A tlantic Real Estate Journal — Fall Preview — September 23 - October, 20, 2022 — 7D L ending
www.marej.com
By Will McKenna, Progress Capital The state of the current lending market
This state- ment would have seemed contradicto- ry as little as six months ago, yet this was the ex - act response from a recent “T
had to slash rental rates and increase concessions to keep their buildings occupied. Post- pandemic, we’ve seen the op- posite trend, as rents in the New York metro area have come back with a vengeance and reached all-time highs, not just in Manhattan but the outer boroughs and Jersey City. Hotels are seeing occu- pancy rates similar to 2019 and 2020 levels and, while still off their overall peaks, companies are finally starting to push for a full return to the office for many employees. In the upcoming higher rate
environment over the coming months, a stabilizing effect should preside over all com- mercial real estate valuations. As interest rates rise, so do cap rates. Let’s face it – we’re staring a recession in the face and, with the exception of the dot-com bubble-led recession in 2001, property values have fallen in every other recession since 1973. Property values will fall. Our key takeaway in dis- cussions with clients is that interest rate volatility should be factored in when present- ing offers to purchase com-
mercial real estate. Long-term holders of CRE will use these market disruptions to pick up distressed real estate while pricing pressure continues to create opportunity. What does this all mean? It means prices for CRE as- sets will fall over the coming months as interest rates rise. Savvy investors and real es- tate operators will have an opportunity that may only come around once a decade, and should capitalize if able. Will McKenna is manag- ing director at Progress Capital. MAREJ
week. The Fed has indicated that their goal is to raise the Federal Funds rate to 4% by the end of the year, which will have a significant impact on commercial real estate financing. The pandemic caused cer- tain asset classes to shoot up in value, while others lagged significantly. Industrial went wild, while hospitality, office, and retail took a beating. Mul- tifamily in major northern cit- ies took a hit as renters fled to warmer climates that had bet- ter access to outdoor activities. Landlords from DC to Boston
his rate is pretty high… can we lock it in?”
Will McKenna
client when presented options for a refinance. The state of the current lending market is a bit frothy and moving quickly, and experienced borrowers and property owners are try- ing to move even faster. This week’s CPI numbers weren’t helpful either. The consumer price index rose 8.3% year over year and 0.1% in August. Investors will now most likely see a 75+ basis point increase in the federal funds rate next Renewable Energy vs. Energy Efficiency for . . . continued from page 1D Long-term strategies typi - cally require significant up - front capital and have longer payback periods but higher ROI. They reduce monthly utility costs, lower a build- ing’s carbon footprint and will likely improve indoor comfort for occupants. They may also reduce maintenance costs and mechanical issues. Conclusion Emissions for buildings can be reduced by a building owner either converting to renewable energy or investing in energy- efficient strategies. Converting to renewable energy will only reduce a building’s emissions and will not impact energy usage or costs. Investing in en- ergy efficiency is the only way to achieve both, a significant cost savings while reducing a building’s emission footprint. Ideally, a building owner will do both — converting to renew- ables and investing in energy- efficient strategies. Whether a building owner decides to convert to renew- ables or invest in energy ef- ficiency improvements, the effects of climate change will be reduced. And by doing so, the overall value of the build- ing can increase while costs are lowered simultaneously. Joe Holman is principal and practice leader, ESG Services at Withum. MAREJ
An Advisor You Can Lean On...
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Will McKenna, Managing Director 201.341.3096 will@progresscapital.com
progresscapital.com
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