The Federal Open Market Committee (The Fed) just voted to raise short terms rates by .25% to 5.25%. This is the 17th straight increase by The Fed. Prime rate will now increase to 8.25%, and the LIBOR index should increase about the same amount. Short term loans such as construction and bridge loans will now increase in proportion.

The ten year treasury, the most common index for fixed rate loans has inched up to 5.25%, in line with our prediction that this index will now keep pace with the Fed Funds rate.

This move was widely expected and eagerly welcomed by the stock market. The markets jumped up sharply this morning in anticipation of this move.

Why is this increase a good thing?

Stock market investors believe these rates are good for the economy by keeping inflation down. Businesses will be healthier if inflation is held down. These businesses are the tenants who lease buildings from investors who hope for increasing lease rates. So the Fed right now is the friend of the commercial real estate community.

Both short term and long term rates are well below historic averages, so this increase and the one or two more anticipated this year, should help more than threaten commercial real estate investments.

That being said, locking in rates now rather than later is strongly advised.