Commercial real estate debt professionals are hopeful Congress will vote to extend the US debt ceiling, expanding the country’s borrowing limit and averting the potential for a catastrophic default on US sovereign debt.
The House of Representatives is expected to pass an agreement this week that would include some spending cuts for a number of discretionary programs, according to a May 25 report in The New York Times.
Nitin Chexal, chief executive of Austin-based manager Palladius Capital Management, expects the extension will be passed ahead of a June 5 deadline. Chexal is also expecting to see a positive impact on the commercial real estate debt markets.
“In the short term, a resolution will bring benchmark Treasury yields down slightly, especially on the short end of the curve,” Chexal said. “The majority of institutional real estate market participants continue to focus on economic growth, inflation and employment data, which will ultimately drive the Federal Reserve’s next move [to fight inflation] – skip, pause, or hike.”
Joseph Iacono, chief executive of New York-based real estate manager Crescit Capital Strategies, agrees that eliminating the uncertainty will be good for the commercial real estate debt and equity markets and the broader economy.
“Commercial real estate will benefit from a resolution, as will other markets if a deal is made. If a default does happen, [the sector] will be subject to further instability in the capital markets and the leasing markets until a resolution is reached. Thus, financing, trading and occupancy may suffer,” he added.
An agreement is expected later this week, according to published reports.