Interest Rate Risks: How Can Commercial Property Owners Survive?

Interest Rate Risks: How Can Commercial Property Owners Survive?

The Federal Reserve Bank's recent interest rate hike has affected commercial property owners nationwide. To stay in the game, you need to adopt strategies to help you survive.

What should you look out for? How can you protect your investment?

Read on for some techniques to help you stay afloat in this financial climate.

How Interest Rates Affect Commercial Property Owners

Prepare yourself for the implications of the recent interest rate rise. Informing yourself of the potential issues you face helps you protect your business. What can you expect in the following period?

Higher Real Estate Lending Costs

Higher interest rates mean you will spend more when you borrow to buy property. As a real estate investor, commercial loans help you access new opportunities as they arise. However, with higher repayment expenses, it will be harder to achieve an optimal return on investment (ROI).

Demand for Property

Higher real estate lending costs will make it harder for those buying property to enter the market. Depending on which segment of real estate development you operate in, this could cut your potential customer base significantly. Commercial property owners may struggle to fill purchased spaces, forcing them to lower rent prices at a loss to themselves.

Steeper Capitalization Rates

Capitalization rates tend to rise in tandem with interest rates; an interest rate decrease has the opposite effect. This rise can negatively affect the valuation of commercial properties, making it hard to turn a healthy profit. Your existing portfolio may reduce in value, forcing you to cut costs to keep your revenue positive.

Strategies to Protect Your Investment

Luckily, there are ways to mitigate your losses after an interest rate hike. Property managers can help you navigate this process. In the meantime, here are some basic tips to help you.

Look to Private Equity

Firms specializing in private equity can give you the funding you need to invest. Commercial property owners can turn to these firms when traditional banks are not a feasible option, like in the case of an interest hike.

Make a Mezzanine

Close the gap between debts and equity by making use of mezzanine debt. Secure your mezzanine loan against your property ownership interests. Mezzanine debts tend have have higher interest rates than traditional bank loans, and as such, they carry a degree of risk.

However, mezzanine loans are a viable option when an interest hike backs you into a corner. Research your options before deciding!

Real Estate Investment Trusts

Real estate investment trusts (REITs) own, operate, or finance real estate. Instead of buying your property yourself, you can invest in REIT shares to turn a profit while reducing your potential losses. These publicly traded companies can help you keep your real estate investment moving even when interest rates rise.

Property Management Can Help You

Commercial property owners remain at risk from interest rate fluctuations. While you can protect yourself with the strategies we talked about, a more effective solution is available: professional property management.

PMI Property Management offers the advice you need. Our team at Boynton Beach, FL, are experts in commercial real estate. Survive the interest hike.

Book a consultation today!