Why real estate investors do not love today's low interest rates
This podcast originally appeared on PERENews.com.
Hoping to reassure stock and bond investors spooked by the coronavirus outbreak’s potential impact on the global economy, the US Federal Reserve announced its steepest rate cut in more than a decade Monday.
Dropping the target range for its benchmark funds between 1 percent and 1.5 percent, the Fed signaled a willingness to soften the blow of disrupted supply chains and stunted travel with easy money. If last year’s Fed rate cut – the first since 2008 – is any indication, central banks around the world are likely to follow suit.
While low rates can be an effective way to incentivize spending, they are certainly not a cure-all. Further complicating the issue, central banks have little capacity to easy money any further, with most banks already hovering just above -or just below – 0 percent.
In the short term, this can be a boon to commercial real estate investment, but its long-run impacts are less certain, particularly if the global economy slips into a recession despite the current historical low interest rate environment. That is a scenario that seems increasingly likely the more the virus spreads.
Anthony Brault of the Oregon State Treasury, Greg MacKinnon of the Pension Real Estate Association and Brant Bryan of the real estate firm Cresa tell us how a ‘lower-for-longer’ interest rate environment can lead to uncertainty at best, and calamity at worst, for institutional investors.