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Interest rate increase might impact commercial real estate

Californians who are interested in investing in commercial real estate may have heard that the Federal Reserve raised the interest rate in December 2015 by 25 basis points. This change has led some investors to worry about the potential impact on the commercial real estate market because interest rates often correlate with capitalization rates.

According to Spencer Levy, the head of research for the Americas for CBRE Group, Inc., the recent increase should not be a strong cause for concern for the time being. Instead, he believes the biggest effect will only be on short-term interest rates, a change that has already happened.

Mr. Levy indicates that the Federal Reserve's action had long been expected and so has had less of a negative impact on the commercial real estate market. He did indicate that the Fed is expected to eventually raise the interest rate by 100 basis points, however. Mr. Levy and the CBRE Group believe that when that happens, the change will negatively impact the rates of capitalization.

Commercial real estate investing involves understanding when to get in and out of the market. Those who are involved with commercial real estate may benefit by having the help of an attorney who is familiar with the complexities that can be involved in this legal area. It is not uncommon for real estate litigation to arise out of very large transactions. An attorney may help by carefully drafting and reviewing agreements in order to protect the client's interests while minimizing the risk of legal disputes in the future.

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