How do commercial real estate investors make money in a rate-rising environment? 

real estate agents discussing potential factors

The commercial real estate market may look quite intimidating to investors right now. The cost of building materials remains historically high, interest rates have risen from their historical lows, and inflation has quickly swept through seemingly every aspect of business and society. The assumption would be that investors should pile up cash and put it on ice until conditions are more stable and more favorable. But that assumption would be wrong for most. Here is why: 

  1. Current market conditions can make it easier to get a discount 
  1. Current market conditions can remove other buyers (competition) 
  1. Higher payments are temporary 

Short-term and long-term commercial real estate investments 

Commercial real estate investors looking to buy properties, hold for two years or less, and then sell for profit may be the most likely group to be negatively impacted by current market conditions. Property values surged in 2021 and have continued climbing in 2022. The outlook beyond 2022 is cloudy. Speculation over what property values will do over the next two years varies. Property values could climb higher, but there could also be a retraction on the horizon. 

For commercial real estate investors looking to make long-term investments, the current market conditions should have little impact on decisions. In times like this it can be more difficult to acquire capital, and it will cost more to acquire capital, but the opportunity to make money in a rate-rising environment is still there. 

Cash flow on commercial real estate investments 

One impact on the decision to make a commercial real estate investment is cash flow. Straight cash flow deals (where property improvements will not be required) will either work or they won’t work. It is just a matter of running the numbers. Property values and interest rates have risen, but so have rents. Commercial real estate is a stable asset and as long as the cash flow works, the investment makes sense. This thought process is the same no matter what is happening in the market, and it will not matter if it is a short-term or long-term investment.  

Forced appreciation on commercial real estate investments 

Buying assets that allow you to force appreciation is preferred in a rate-rising environment. When you have the opportunity to make physical property improvements, improve operations, or improve cash flows (by renegotiating rents with tenants, for example) you can force appreciation of the asset. Forced appreciation helps to absorb or offset the cost of higher interest rates. 

Know your numbers to make smart commercial real estate investments 

Any smart investor will know their numbers to determine if a deal will or will not work. What ROI are you looking for? What timeframe do you have to work with? If this is an investment you plan to keep for 5-7 years or more, you can be sure that rates will go up and down by 2027. Run a stress test on your deal – if rates were to hit “X%” would my deal work? When will this deal not pencil? 

Commercial real estate market forecasts for 2022 

Most financial markets forecasts show interest rates continuing to rise over the next year. Likewise, most commercial real estate forecasts show property values and rents continuing to rise over the next year (read this recent article from the National Association of Realtors blog for a good example). Making money on commercial real estate in a rate-rising environment (especially our current environment) should still be the expectation. 

Lincoln James Capital can help you find and secure CRE financing with the best terms 

If you have commercial real estate investment opportunities, Lincoln James Capital can help get your deal done. We have extensive market knowledge and can help you make confident decisions. We have a large database of lenders who offer great rates. Keep in mind, we don’t make more money from higher rates. We get paid to get our clients the loans they need with the best terms (which is not always the best rate) so they can close their deals and continue to build their business and increase wealth. 

Want to go deeper on the topic? We created an in-depth analysis that includes… 

👉🏽 The recent history of the U.S. Treasury 

👉🏽 How to identify profitable properties 

👉🏽 How to “stress test” investment options 

👉🏽 Advantages of working with an experienced commercial lender 

Read more in our featured article… 

“Rates Are on the Rise. How Investors Can Position Themselves for Long-Term Success.”


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Brigitte Grava

Financial Analyst

Brigitte Grava, an accomplished scholar from the University of Tampa, holds both a Bachelor’s Degree in Economics and a Master’s of Science Degree in Entrepreneurship from her alma mater. Brigitte’s dedication to academic excellence is shown in her performance as an undergraduate student as she was invited to the Adam Smith Economic Honor Society in addition to graduating from her Master’s program at the top her class in 2022. With over 5 years of industry experience, including a specialized focus on mergers and acquisitions during her 3-year tenure at a boutique investment bank, Ms. Grava brings a wealth of financial expertise to her endeavors. Her exceptional execution of economic and financial analyses, coupled with her strategic insight, empowers her to provide invaluable recommendations for business growth and corporate development. Brigitte is skilled at navigating intricate M&A transactions, consistently delivering optimal outcomes for her clientele. Her track record speaks volumes about her ability to handle every facet of these transactions with finesse, resulting in remarkable results for her clients.

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Alyssa Beatrice is the Marketing Director of Lincoln James Capital, leveraging over 7 years of expertise in both B2B and B2C domains. Holding a Bachelor’s Degree in Business Administration with a major in Marketing, Alyssa’s career is driven by innovation, determination, and data-driven results. Her impressive track record showcases numerous successful online and offline marketing campaigns, reflecting her inventive spirit and collaborative team approach. Alyssa’s unwavering passion for achieving exceptional outcomes has made her an invaluable asset to our team at Lincoln James Capital.

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Commercial Loan Originator

Armed with a bachelor’s degree in business administration, specializing in Personal Finance from the University of Wisconsin Stout, Andrew possesses a wealth of knowledge and expertise in the Commercial Finance industry. With a solid background in community banking spanning 3  years and an additional year as a commercial credit analyst at Bankers Healthcare Group, he has demonstrated exceptional proficiency in the financial domain. Notably, Andrew has also successfully ventured into the real estate sector, establishing three thriving businesses in recent years.

Beyond his professional pursuits, Andrew cherishes quality time with family, friends, and his two beloved dogs. He finds solace in exploring new destinations through travel and engaging in outdoor activities such as hiking, golf, pickleball, and hockey. A true sports aficionado, he ardently supports the Green Bay Packers, Milwaukee Brewers, and Chicago Blackhawks.

Alex Cheng

Senior Vice President

After receiving his Bachelor degree in 1978, Alex started his professional career with a reginal CPA firm in New Orleans as Auditor. In 1980 he moved to Los Angeles to join ABPA, a national employee benefit administration firm.  He was promoted to Accounting Manager when he left the firm in 1988 when he was recruited by Dallas TX based Caltex petroleum Corporation, a JV of Chevron USA and Texaco Oil Company.  Alex served as Director of Finance in various countries, including the Philippines, Greater China (China, Hong Kong and Taiwan) and Australia.  Alex left Caltex in 1995 to start his own accounting firm in Burlington North Carolina.  By 2006 his firm has grown to a regional presence with offices in Cary, Burlington, Greensboro, Charlotte and Rock Hill, SC.  Alex sold his successful practice in December 2006 just before the latest financial meltdown.  Since 2007, operating under the firm name Alliance Consulting Group, Alex has been a financial and management consultant advising clients on complicated fiscal matters and improve overall efficiency in management and operation.  In 2015, Alliance Consulting added digital marketing to its service area to meet the changing landscape of business.  Currently his firm manages private equity funds of Family Offices and other high net worth individuals, with focus on multi-family apartments and purpose-built Student Housing apartments near major universities throughout the country.