Resisting the Urge to Cut CapEx

Pope advises property owners to resist the temptation to reduce Capex reserves when rates increase.

VALHALLA, NY—The Federal Reserve’s plan to slowly raise interest rates—at least twice before the year ends—could have the unintended effect of driving up property and casualty claims and insurance costs for middle market commercial real estate investors and owners. So says Geoffrey Pope, VP at USI Insurance Services.

Although the Fed’s decision on rates reflects a positive view that the US economy is recovering and no longer needs to be supported by artificially low rates, there’s another side to this issue for the real estate industry. Specifically, critically needed capital expenditures such as upgrades to heating and air conditioning systems, roofing, flooring, as well as major electrical and plumbing work could be tabled as real estate companies seek to trim costs and save money in an environment that makes borrowing more expensive.