Rate hikes spur borrowers

Although interest rates are beginning to creep up, there's no sign that they're having any effect on the red-hot market for commercial real estate and development in northern Nevada.

In fact, most observers believe rates would need to rise substantially to double digits, maybe before they'd bring the boom to an end.

The benchmark 10-year Treasury note, which was at 3.69 percent as recently as March, was pegged over 4.3 percent last week its highest level since January.

And Wall Street expects the Federal Reserve Board will push rates up by a quarter point at the end of this month, with another modest increase possible in an another month.

That's created a mild sense of urgency among some borrowers.

"People are trying to get things done under the lower rates," says Bobbi Bennett, president of Nevada State Development Corp., the Reno-based company that's the state's biggest Small Business Administration lender.

At the same time, however, Bennett said last week that the economics of most of the deals crossing her desk are so compelling that minor upticks in interest rates don't mean much.

That's particularly true for companies moving to Reno from California, said Dennis Williams, president of community banking at 1st National Bank of Nevada.

"They're saving so much getting out of there that interest rates aren't a big concern,"Williams said.

Little bumps in rates also don't do much to dampen the enthusiasm of business owners who want to own their real estate rather than leasing.

"I've never seen the market stronger than it is right now,"Williams said.

"It's almost overwhelming."

Mal Ercanbrack, who heads the Wells Fargo commercial real estate division in Nevada, noted that recent upticks in rates aren't terribly significant in historical terms.

"Rates today may not be at 40-year lows any more, but they're at 35-year lows," he said.

The effects of higher rates, he said, are likely to be seen in different choices by borrowers a growing interest in shorter-maturity loans, for instance.

Rising rates won't have much immediate effect on business loans other than real estate, said John Shively, executive vice president of northern Nevada banking for Sun West Bank.

Floating rates on those loans, he said, often are reset once a year or so, which means borrowers aren't as sensitive to each tremor in the Federal Reserve.

Even if purchasers of commercial real estate want to nail down deals before rates rise any further, real estate executives say they'll be hamstrung by tight inventories of available properties.

"There's not much they can do about interest rates because there's no product out there," said Brent Davis, senior vice president for investment sales and development with Trammell Crow Co.

in Reno.

Another commercial real estate specialists suggested, however, that potential sellers rather than buyers should be feeling some urgency as interest rates begin to drift upward.

Rising rates will depress the sales prices of commercial properties, said Todd Blonsley of Marcus & Millichap Real Estate Investment Brokerage Co.

That's because buyers will seek to preserve their returns even though their interest payments are higher and the only way to do that is through a lower purchase price.

Property owners who have held property through the boom in Reno real estate now may have significant equity that they can cash out, Blonsley said, but some of the equity will evaporate as rates rise.

"This is a good opportunity for people to lock in a profit, and they can borrow to buy a new property while rates are still low," he said.