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

LOS ANGELES-Commercial real estate investors from Wall Street to the Pacific Coast Highway are cheering the surprise interest-rate cut announced by the Federal Reserve, saying the reduction will bolster the prospects of many key tenants and allow owners of some marginally successful projects to refinance and improve their returns.

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.