Master Forecasting to Navigate Rising Interest Rates in CRE

During a webinar with Globe St, Thriving to ’25: Navigating Turbulent Times with Proactive Strategies in Commercial Real Estate, a panel of distinguished industry leaders including Rob Finlay, the CEO & Founder of Thirty Capital, Max Bresner, the COO of Brikwell, Jay Saunders, the Director of Thirty Capital, and Peter Slaugh, the Founder and Managing Partner of OpenPath Investments, gathered to address the prevalent topic of interest rates in the commercial real estate (CRE) market. The uncertainty surrounding rates, particularly with short-term rates like Secured Overnight Financing Rate (SOFR) compared to long-term rates like the 10-year, has led many to wonder about the best strategies for managing this volatility. But hoping for rates to decrease isn’t a viable plan. Instead, it’s crucial to adopt proactive strategies that leverage forecasting to capitalize on opportunities as they arise.

With interest rates dominating discussions across the commercial real estate landscape, it’s crucial to grasp their significance. Continue reading for a brief overview or access the on-demand webinar here.

If you haven’t yet, make sure you read our first and second article in this series: The Power of OKRs in CRE & Making Informed Strategic Decisions in CRE with Artificial, Business, and Human Intelligence


Treasury Yield Curve: Understanding the Inversion

The Treasury Yield Curve serves as a vital indicator of economic health. The inversion of the yield curve, where short-term rates are higher than long-term rates, has been an ongoing topic of concern. This inversion has sparked considerable debate, and Jay pointed out during the webinar that it has been sustained for over 20 months. Contrary to the conventional association of inversions with impending recessions, the market has thus far defied expectations. Examining the factors behind this inversion, such as rate policies’ sensitivity and inflationary expectations, allows you to better understand what is driving both short and long-term rates. Long-term rates, though currently high compared to the past 15 years, offer stability and opportunities for property improvement over time, as noted by Peter.

The Fed’s Dot Plot: Navigating Rate Forecasts

The Federal Reserve’s Dot Plot is critical to understanding interest rate trajectories, offering projections on future rate movements. Jay emphasized the importance of monitoring these forecasts, noting that the Fed serves as a reliable source for rate predictions. However, as he cautioned, the accuracy of such forecasts hinges on the quality of underlying data models. Max added that the inverted yield curve signals eventual rate decreases, which provides another dimension to interpreting the Dot Plot’s implications, emphasizing the need to align strategies with market expectations and Fed projections for informed decision-making.

Utilizing Data Insights to Inform Decision-Making and Meet Market Expectations

As noted by Rob, informed decision-making relies heavily on the data available. The poll data gathered during the webinar provides valuable insights. With 78% of voters predicting 1-3 rate cuts in 2024 and 22% predicting 0 rate cuts, it’s evident that a significant majority anticipate some degree of easing in interest rates.

interest rates in CRE

Leveraging Predictive Tools to Form Actionable Strategies

In the face of rising interest rates, understanding predictive tools like the Treasury Yield Curve, interpreting the Fed’s Dot Plot, and incorporating market sentiment into decision-making empowers owners and operators to navigate the challenges posed by interest rate volatility. Matching property cash flow projections to debt optimization strategies allow you to capitalize on opportunities effectively. By identifying discrepancies between market pricing and Fed projections, informed decisions can be made to navigate interest rate fluctuations successfully. Additionally, Rob emphasized the importance of managing debt more frequently than the typical 5- to 10-year cycle, highlighting the need for continuous debt optimization and to be informed by available data from these tools and market forecasts.

Watch the On-Demand Webinar

As the market continues to evolve, you can maximize opportunities and mitigate risks by employing predictive tools, leveraging data-driven insights, and adopting proactive debt management strategies.

Waiting for interest rates to drop is not an effective solution for navigating through market turbulence. Instead, learning to forecast and understand forward rates can help you predict and understand market trends and manage debt more effectively. To unlock further insights, watch the on-demand webinar! 

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