(773) 763-6750

J. Chie, Esquire

Our law firm provides legal work for real estate closings for over 30 years… What distinguishes Chicago Commercial Appraisal Group from other appraisers is the level of thoroughness and details.

A. Raila, Senior Tax Analyst

Gary is a hands-on professional always willing to pick up the phone and work with you... His appraisal firm produces one of the best real estate forecasting reports in the state. I highly recommend his work and his opinion is highly recognized by governmental agencies.

J. Norris, Property Tax Attorney

As an attorney, we deal with many appraisal reports used in tax appraisals. Gary's work has proven successful for our clients and I do not hesitate recommending him for tax assessment appeal appraisals.

C. Noone, property owner

I needed an appraisal for settling an estate. Mr. Peterson was very professional, punctual and helpful with the process. I received my report ina timely manner. I would certainly recommend this company, as well as use their services in the future.

J. Tsiaousis

Gary is one of the top commercial appraisers in Chicago. Every time I have a client in need of a commercial appraiser I refer all work to him without hesitation.

<<< back< prevnext >

Interest Rate Increases Impact on Property Values

As interest rates increase there is the potential for some declines in property values. Increased lending costs result in less money going to the owner's bottom line.

One method of measuring the amount of the potential decline in value is by utilizing the band of investment formula.  This formula develops an overall weighted rate by evaluating the fractional rates of mortgage and equity components of an investment.  In this analysis we assumed a 25-year loan, 30% equity and a 70% debt. 

With a 6% mortgage rate, the derived capitalization rate is 8.41%.  When the mortgage increases to 6.25%, the capitalization rate increases to 8.54%, which equates to approximately 1.5% decrease in capitalized value.  If the interest rate on a loan would go from 6 to 7%, the decline in capitalized value would be around 6%.

The impact of the decline could theoretically be partially mitigated if the investor is willing to accept a lower return on equity.  We saw evidence of this in the past although rates are now very low and it is difficult to see much more compression in rates investors are willing to accept this late in the investment cycle.  This analysis also does not factor in the possibility of higher rents which may be prevalent in a more inflationary environment.

Utilizing these simplified assumptions, we are then roughly looking at a 1.5% decline in property value for every 0.25% increase in interest rates and a 6% decline for every 1% increase in rates.