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Fed Plan to Sell Off $4.5 Trillion in Assets Could Boost CRE Borrowing Costs

by Bruce Kahn | Jun 20, 2017

The Foundation Group, Seattle Commercial Real Estate In addition to raising short-term interest rates this month, the Federal Reserve has announced plans to start selling its assets to help better manage inflation.

After the financial crisis the Fed acquired $4.5 trillion in bonds and other securities to try and stabilize the economy and lower long-term interest rates. Fed Chair Janet Yellen said the economy is showing a level of resilience, which now makes this policy of quantitative easing unnecessary, The Real Deal reports.

The Fed will shrink its portfolio by $10B now, then gradually increase the sell-off each quarter. The decision presents positives and negatives for the commercial real estate industry, TRD reports, since the Fed reducing its balance sheet could result in higher long-term rates, in turn raising borrowing costs and possibly lowering property valuations as a result. Yellen said the Fed hopes to avoid disrupting markets too much by implementing a slow and gradual sell-off plan.

About the Author

Bruce A. Kahn, CCIM, CPM is a Managing Director of The Foundation Group Investment Real Estate Solutions, a full-service property management and brokerage company. He has earned the designation of CCIM (Certified Commercial Investment Member) issued by the CCIM Institute, and is a CPM (Certified Property Manager) with the IREM (Institute of Real Estate Management). For further information or for a property analysis, please contact him at 206-324-9424 or by email.

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