The Federal Reserve cut interest rates twice in two weeks in response to the impacts of the COVID-19 outbreak. First, the Fed cut rates to 1% to 1.25% on March 3, and then, in an emergency meeting, made a second cut to 0% to .25% on March 15. Many in the commercial real estate industry say the move was a necessary response to the economic impacts of the virus outbreak, but that they will have little impact on new acquisition commercial real estate deals.

“It was necessary to show that the Fed is active, interested and involved,” Patrick Ward, founder and president of Metro Group Realty Finance, tells GlobeSt.com. “However, commercial real estate debt is really based on the long-term Treasury, and that actually went up 25 basis points over the last couple of days. We watch the 10-Year Treasury, so when the Fed lowers the discount rate to near zero, it is good for the global picture, but commercial real estate financing is sometimes counter to that.”

There are currently a lot of question marks about the length of this outbreak, the severity and the sheltering period. Lenders are responding with caution, as is typical during times of uncertainty. “We have seen dramatic cycles like this, and when this happens, lenders do one of two things,” says Ward. They either sit back because they don’t know where things are headed, or they put in artificial floors to protect themselves. They don’t know where the indexes are going and they don’t know where the spreads are going. That is what we are seeing now.”

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Kelsi Maree Borland

Kelsi Maree Borland is a freelance journalist and magazine writer based in Los Angeles, California. For more than 5 years, she has extensively reported on the commercial real estate industry, covering major deals across all commercial asset classes, investment strategy and capital markets trends, market commentary, economic trends and new technologies disrupting and revolutionizing the industry. Her work appears daily on GlobeSt.com and regularly in Real Estate Forum Magazine. As a magazine writer, she covers lifestyle and travel trends. Her work has appeared in Angeleno, Los Angeles Magazine, Travel and Leisure and more.

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