Fed Chairman Alan Greenspan and his Federal Open Market Committee stunned stock-market traders and the better part of the world on Tuesday by announcing that they were immediately slashing the US federal funds rate—the rate that big banks charge each other for overnight loans—to 6% from 6.5%. It was only the second time in two decades the Fed moved rates without holding a formal meeting, and the decision touched off huge gains in both the Dow Jones Industrial Index and the battered Nasdaq market.

Few real estate experts believe that Tuesday's rate-reduction will trigger an explosion of new construction anytime soon. Experts note that smart developers base their new projects on demographics, supply-and-demand figures, and other trends that aren't influenced much by short-term changes in interest rates.

Yet, the cut could have a fast, uplifting financial and even psychological effect on tenants in commercial real estate developments across the US—and thus positively impact real estate markets sooner rather than later.

"The rate-cut will help to increase the profitability of corporate space-users, and that would be good for property investors too," Gerald (Jerry) Porter, vice chairman in the West LA office of brokerage powerhouse CRESA, told GlobeSt.com in an exclusive interview late Wednesday. Tenants who've been apprehensive about expanding may be heartened by the Fed's move, Porter explains, while lower borrowing rates will provide at least a modicum of short-term relief to other tenants who've been thinking about making more reductions in staffing levels and office space.

Michael Ross, managing director of fast-growing Colliers Seeley International in Los Angeles, says buyers and sellers alike will benefit from the drop in long-term mortgage rates that Tuesday's surprise rate reduction may portend. "Long-term, if interest rates go down, then cash-on-cash yields will go up," Ross tells GlobeSt.com. "Sellers won't have to drop prices much because buyers can get higher yields through lower interest rates."

Yet, mortgage rates might not drop as far—or as least as quickly—as some real estate owners and would-be borrowers hope. Tuesday's reduction "was anticipated, [so] we've seen rates come down rather precipitously in the past week," says Howard Levine, president and CEO of California-based multifamily lending giant ARCS Commercial Mortgage Co.

The low rates many lenders are charging for financing today, Levine tells GlobeSt.com, "already reflect the fact that everyone knew the Fed was going to lower rates soon. But I think we'll see more rate drops in the future. And in the long-term, it's going to make a lot more deals viable."

Still, few experts say the Fed's decision to lower rates will provide much relief to the nation's troubled dot-com sector, which has lead the West Coast's economic expansion over the past few years and has become the region's single largest user of prime office space.

"The dot-com business has never been a rate-sensitive market: It's a market that's been driven by [their stock prices on] Wall Street," says CRESA exec Porter, whose brokerage firm is an undisputed leader in representing high-tech tenants. "Over the long term, lower rates may help some of the stronger dot-coms achieve profitability sooner but they won't do much to help the start-ups."

Instant Insights /

Fed's Rate Cut to Help Tenants First, Owners Last

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