Christopher J. Waller, executive vice president and head of research with the Federal Reserve Bank of St. Louis., spoke last week at an event hosted by the Rutgers Center for Real Estate. — Courtesy: Rutgers Center for Real Estate/Fred Stucker
By Joshua Burd
Certainty and predictability can be hard to come by these days, so real estate and finance professionals will settle for a little conviction when it comes to the Federal Reserve.
They got exactly that last week at an event hosted by the Rutgers Center for Real Estate. During a program in Newark, advisory board members and other attendees heard from Christopher J. Waller, the head of research with the Federal Reserve Bank of St. Louis.
The topic was the repeated uncertainty over the Fed, whose officials have repeatedly talked about raising interest rates in recent years, but have largely balked at doing so. Attendees said Waller, an executive vice president in the St. Louis district, had a clear and welcome message: If unemployment and inflation are going to be flat, there is no reason to raise the federal funds rate.
Nor should the central bank continue to float the idea.
“The credibility of the Federal Reserve is at stake right now,” said Morris Davis, the academic director of the Rutgers Center for Real Estate. “For about seven years, the Federal Reserve has announced an inflation target of somewhere between 2 and 2 and a half percent. And for seven years running, the Federal Reserve has undershot that inflation target.”
Rutgers Center for Real Estate at the Newark Museum — Photos by Fred Stucker
Davis, the Paul V. Profeta Chair of Real Estate for Rutgers, said Waller’s argument that we are in store for many years of low growth is data-driven. He said that has led to a reversal in thinking for Waller and, potentially, for his colleagues at the St. Louis Fed.
It remains to be seen if that argument translates to low rates over the long term — and whether the opinion spreads to the central bank. But Davis, a former economist for the Federal Reserve board, said it would signal to real estate professionals that the cost of capital will stay low.
Advisory board members for the program were among the more than 100 attendees at the Newark Museum for the Oct. 6 event. They were joined by the Center for Real Estate’s Emerging Leaders Council, MBA candidates, undergraduates and other guests.
Others in attendance felt Waller made a compelling case. Christopher Bellapianta, managing director and principal with Advance Realty, said the presentation “was extremely thoughtful and provided insight into the various macroeconomic factors that influence movement in rates,” adding that “the crowd heard a strong impetus for rates to stay low for the medium term.”
“Conviction on interest rate movement is very powerful for any investor,” said Bellapianta, a member of the Emerging Leaders Council. “It is particularly important to real estate investors buying stabilized or triple-net-leased assets at low yields.
“Significant upward movement in interest rates will impact cap rates, and in turn asset values, especially on properties that do not have contractual rent increases or the potential for rents to grow.”