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The impact of an interest rate increase on real estate

Stories about falling unemployment rates and a rebounding economy have led many in Maryland to believe that the worst of the 2008 financial crisis is now behind them, but fears that interest rates may soon be on the rise once again have led to nervousness among some real estate investors. One of the most relied upon ways to determine real estate market value is looking at the spread between Treasury yields and capitalization rates. According to experts, this spread is usually about 270 basis points, but low rates and a strong real estate market have seen this spread grow to about 300 basis points.

Experts say that this allows the real estate marker to absorb some of the impact of an interest rate increase. They also point out that the economic data that may prompt a rate hike is also good news for commercial real estate developers and investors. Demand for space will likely continue to push vacancy rates down and rents up, and even fears about a surging dollar are being downplayed by analysts. They say that projects in major markets like New York, San Francisco and Boston are still able to attract significant amounts of foreign investment.

Demographics continues to be a subject that real estate experts pay close attention to. Millennials have been seen as a group prone to renting rather than buying their homes, but they still expect to live in vibrant urban areas with good public transportation and plenty of green spaces for rest and relaxation. This has led to a renewed construction boom in many of the nation's largest cities, and experts expect urban infrastructure to remain a key industry sector.

Real estate acquisitions can often be sidetracked by bitter disputes or other legal problems. Attorneys with experience in this area could review important documents for potentially troublesome provisions, and they may also check the details of a project to ensure that relevant permits have been applied for or secured.

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