Rising Interests Rates - Good or Bad?

In the past month we have seen interest rates go up over 100 basis points on residential 30 year fixed loans, but commercial interest rates have not had much of an increase.  Interestingly, rising interest rates have caused many commercial lenders to get back to lending and offer more loans than they had been offering the past few years.  This has created more competition for commercial mortgage business and actually put downward pressure on rates as more banks compete to get loans.  In fact, right now some commercial rates are being offered at rates very similar to residential rates.  Historically commercial rates are at least 1-2% higher than the 30 year fixed rate and I have been hearing about activity only 0.5% higher.

Along with rising interest rates, there has been an improvement in commercial real estate credit quality and an overall increase in total commercial loan volume.  Much of the increase is attributable to new construction and multi-family lending, but other commercial real estate sectors remain strong and continue to rebound from their 2011 lows.  Nationally there are fewer bank owned properties available and fewer properties underwater than there were a year ago.

Locally, there are still some good deals for investors who want to get into the market as prices rise and interest rates remain low.  We currently have 4 properties listed by banks and motivated owners that I think are great deals.  One is a 5-6 unit retail/office building in a high visibility location at 525 W 14th Street.  This building has a current income and upside potential as vacant space gets leased out in the improving economy.  Similarly, 3502 Kirkland court has 2 units vacant and 2 units rented and high visibility on US-31 in Acme.  Recently we listed a 40 acres development piece in Interlochen.  At $295,000 it is a steal.  There are 9 acres of commercially zoned property on US-31 and the back of the property has 31 acres that could be split into residential development lots.  There is an existing 5 bedroom home on the property with tenants that would either keep renting or potentially buy just the house on 1 acre.  Last, but certainly not least, we just listed a 12 unit retail strip center in Cadillac.  It is in the best location in Cadillac across from Meijer & Walmart.  It is a newer building built in 2005 and returns a 9.1% CAP rate on the existing tenants with 1 remaining unit to lease and increase the return.  If you know anyone who is ready to buy, let me know!  I even know of a tenant that would be interested in leasing the vacant unit.

I am very optimistic about the real estate market and think there are many signs that we will continue to see strong sales, price gains, new construction and a slow and steady improvement over the next few years.  If sales can actually continue to increase while interest rates rise, I think that is a strong sign that we are on our way to economic recovery.
Dan Stiebel, CCIM

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Dan Stiebel

Dan Stiebel

Associate Broker
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