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Alternative Market Briefing

Fed rate rise unlikely to slow down real estate investment

Thursday, March 16, 2017

Bailey McCann, Opalesque New York:

The US Federal Reserve on Wednesday raised its benchmark short-term rate by a quarter percentage point to a range of 0.75% to 1% and stuck to its forecast of two more such increases this year and three in 2018.

"The simple message is -- the economy is doing well." Federal Reserve Chair Janet Yellen said during a news conference on the decision.

The Fed left its forecast for the federal funds rate unchanged and is projecting two more quarter-point raises this year. The Fed is positive overall on macroeconomic trends in the US, noting that business investment has improved and that inflation is starting to tick up.

While the rate rise was largely priced into markets, some investors have pulled back on asset classes including REITs citing more expensive real estate financing coupled with underperformance. However, some investment firms argue that those concerns are overblown.

"If you look historically, REITs have done well in a rising rate environment," says Sam Sahn of Toronto-based alternative investment firm Timbercreek Asset Management. Sahn suggests that investors that are underweight REITs may want to reconsider, as the long-term value opportunity is strong and REITs can provide relatively liquid exposure to hard assets.

"When the economy is growing, you see greater demand for office space and that leads to a bump in commercial real estate, for example. That's going to be beneficial for REIT and real estate......................

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