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Interest rates on commercial mortgages may continue to rise

With improvements to the economy, we are also seeing higher interest rates on commercial mortgages.  Certain commentators seem to be suggesting that interest rates will continue to increase during the next few years.  The Federal Reserve has sent out messages that it would be slowing its bond acquisition program.  This could be interpreted as meaning agency officials are also willing to increase interest rates.

Interest rates are anticipated in any case to rise by one percentage point for the next 12 to 24 months.  As interest rates are already at a historic low, it shouldn’t surprise commercial property investors in any case that interest rates will rise.  One concern about increased interest rates is the possibility of accompanying lower property values.

Arguably with increased interest rates, we are also going to see rental rates on commercial investment properties increase as well. This could mean that more individuals cannot in the long run afford the property that they rent.

Keep in mind it’s never 100 percent certain what rising interest rates could mean concerning property values. However, under certain circumstances an increase in lending rates could mean less return for investors that purchase property. For example, real estate investors will normally want a higher return rate on a property prior to any costs from debt when we see higher lending rates.

Under such circumstances, commercial debt collectors will likely play an important role for lenders in the California area. Attorneys that work in this area can come up with a variety of debt collection strategies that can minimize loss.

Source: Aspen Daily News, "What do rising interest rates mean to investors," Bill Small, Nov. 17, 2013

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