The Federal Reserve's plan to slowly raise interest rates in2017 could have the unintended effect of driving up property andcasualty claims and insurance costs for middle market commercialreal estate investors and owners.

The Fed's decision on rates reflects a positive view that theU.S. economy is recovering and no longer needs to be supported byartificially low rates. For the real estate industry, however,there's another side to this issue: Critically needed capitalexpenditures such as upgrades to heating and air conditioningsystems, roofing, flooring, as well as major electrical andplumbing work could be tabled as real estate companies seek to trimcosts and save money in an environment that makes borrowing moreexpensive.

Over the next five to 10 years, the pressure for real estatefirms to meet cash-flow projections will result in further capitalexpenditure reductions and increased insurance premiums, eventuallyimpacting net incomes and long-term valuations as I wrote in arecent whitepaper titled, “Interest Rates, Capex, and theInevitable Real Estate Conundrum.”