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NEW YORK CITY-In the 11th consecutive quarter-point increase, the Federal Open Market Committee has raised the benchmark federal funds rate from 3.5% to 3.75%. In a statement on the increase, the committee says that “output appeared poised to continue growing at a good pace before the tragic toll of Hurricane Katrina. The widespread devastation in the Gulf region, the associated dislocation of economic activity, and the boost to energy prices imply that spending, production, and employment will be set back in the near term.” The committee notes that higher energy and other costs have the potential to add to inflation pressures.

“It’s no surprise,” says Gary Gabriel, executive director of financial services at Cushman & Wakefield. “We view the Katrina storm to be more of humanitarian tragedy than an economic tragedy. It has very localized impact.” He agrees that there is the risk of inflation due to government stimulus that will be put in place to rebuilding the Gulf Coast region. “Consumer confidence is down, but once they see region on the mend, the country will get back to doing its business.”

The National Association of Realtors says the storm’s impact will “cause the economy to grow more slowly than in earlier projections, but the economy will get a lift once rebuilding gets under way.” The US gross domestic product is forecast to grow at a pace of 2.3% in the third quarter and 2.7% in the fourth quarter, with GDP for all of 2006 pegged at 3.8%.

“My guess is that any effect on the demand for costal real estate will be short-lived. Jeffrey D. Fisher, professor of finance and real estate and director of the Center for Real Estate Studies at Indiana University’s Kelley School of Business, says. “New Orleans residents have been warned for years that their city was vulnerable to severe hurricane-triggered flooding, while coastal Florida residents realize they’re sitting ducks during hurricane season. The condo market in Florida has been very hot this past year, despite the damage from hurricanes last summer.”

And Stephen F. Thode, associate professor of finance and director of the Murray H. Goodman Center for Real Estate Studies at Lehigh University, says concerns involving information technology and weather risk will determine the future of the commercial real estate market in and around New Orleans. “Many firms already are questioning whether critical functions like record keeping and data storage centers need to be relocated to prevent significant organizational downtime. Companies also will reconsider whether impacted areas can reclaim the labor talent pool needed to thrive, and may end up making their current ‘temporary’ locations permanent.”

“Also everyone and their mother should be taking a run at buying in either Houston or just Gulf Coast in general,” a source tells GlobeSt.com. “Tragic as it is now, there’s gold in those bricks, if you’ve got patient dollars to either make a play on existing, condos, hotels, offices or if you’ve got an appetite for development.”

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