NEW YORK CITY—Depending on whom you ask, Federal Reserve watchers have been equally adamant in recent weeks that Wednesday's meeting of the Federal Open Market Committee will or will not lead to the first of what is likely to be a series of incremental boosts in interest rates. They've also been certain—again, depending on who's doing the talking—that the time has come for the Fed to begin raising rates, or alternately that now is not the time. As far as commercial real estate is concerned, the prospect of a rate hike brings no small amount of trepidation, especially with the Fed's 0% rate in effect for nearly seven years now.

In the view of Ronald Dickerman, founder and president of Madison International Realty, starting the rate-increase process now will benefit the industry, long-term as well as near term. “This low interest rate environment has been unprecedented and has been one of the biggest subsidies the real estate industry has enjoyed in the past seven or eight years,” he tells GlobeSt.com. “We've all been waiting for the US economy to come out of low gear and get into medium and high gear in a world that has been very sluggish.”

With all of the curve balls that have come our way lately, from the Greek debt crisis to the Chinese stock market slump—all of which, not incidentally, have come from outside the US—“it's my view that the US economy has really been gaining some footing and traction, and growing.” Therefore, Dickerman says, “it's probably a healthy thing for the real estate industry to take a little bit of the subsidy, a little bit of the frothiness, out of the market. That will help sustain the recovery, which benefits everybody.”

The industry at this stage “could well absorb quarter-of-a-basis-point increases in the federal funds rate, and maybe 100 to 150 bps increase in the 10-year Treasury,” he says. “Frankly, I think the industry is just going to power right through these rate increases,” thanks to the volume of capital chasing the sector and the strength of the recovery in most of the nation's gateway cities.  

Whether the rate increases begin this month, three months from now or early 2016, Dickerman predicts a “slow and steady” pace. It'll be a pace that the Fed maintains over the course of a year, giving the industry time to adjust.

The low interest rate regimen in place since the aftermath of the capital markets upheaval has left the industry “spoiled rotten,” Dickerman asserts. “Even at a 5% cap rate, you can get positive leverage, or a 4.5% cap rate. Perhaps that's one of the reasons that cap rates have consistently stayed low and have compressed further. Maybe this interest rate environment was absolutely necessary in 2009 and 2010 to get the industry back on its footing and avoid a meltdown of the US financial system, but in 2013, 2014 and 2015, have we really needed interest rates to be this low?”