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BizSense Beat: April 14, 2023

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BizSense Beat is a weekly collaboration between VPM News and Richmond BizSense that brings you the top business stories during NPR's Morning Edition on Fridays.

Here’s a recap of the top story for the week of Apr. 14, 2023:

‘Undeniably the biggest challenge’: Richmond developers reckon with rising interest rates
Reported by Richmond Bizsense’s Mike Platania

Richmond’s bustling development scene is facing the most formidable foe it has seen in recent years: rising interest rates.

The spike in loan rates that began in 2022 has prompted some real estate developers to rethink their math, leading some to delay construction on previously announced projects in the Richmond region or, in some cases, to put project sites back up for sale.

Interest rates had been historically low for more than a decade until last spring when, in the face of rising inflation, the Fed began raising rates at a breakneck pace, thereby increasing the costs to finance new projects.

According to data from the Federal Reserve, its baseline interest rate spent the overwhelming majority of the past 15 years below 1 percent, which allowed developers to typically receive financing from lenders at rates between 3 percent and 5 percent.

As of last month, the Fed had raised the baseline rate for nine months straight, putting it between 4.75 and 5 percent. That means the minimum interest rate many developers are offered by lenders could be nearly 7 percent, in some cases double what they were seeing just a year or two ago.

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