For Nome businesses considering buying commercial property, borrowing just became more expensive.

Between September 4 and September 14, Alaska Housing Finance Corporation increased its rural commercial interest rate from 6.75% to 7.00%. Commercial loans of up to $500,000 increased from 7.75% to 8.00%.

What does this mean for commercial property in Nome?

Nome is entering a period when commercial space may become increasingly important. The Port of Nome expansion, regional construction projects, increased Arctic activity and the potential development of Graphite One could all create additional demand for contractors, mechanics, transportation companies, lodging, storage, offices and other service businesses.

But businesses looking to purchase property have to make the numbers work.

At an 8% interest rate, financing $500,000 for 20 years is roughly $4,180 per month in principal and interest, compared with about $4,030 at 7.5%. That is approximately $150 more every month—and that is before property taxes, insurance, utilities, maintenance and Nome's already-high operating costs.

The difference becomes much larger when compared with financing available only a few years ago.

Nome has another problem: limited commercial inventory

Higher interest rates can slow commercial sales elsewhere because buyers simply wait for another property to come along. Nome doesn't always offer that luxury.

Our commercial inventory is limited, particularly when a buyer needs a specific combination of shop space, warehouse space, large lots, vehicle access, employee housing or a downtown location.

That creates an unusual market.

Higher rates may reduce what buyers can afford, but expanding economic activity could simultaneously increase demand for the relatively small number of commercial properties available.

For sellers, that means pricing is becoming increasingly important. Buyers are going to look closely at whether a property's potential income or business use can support today's financing costs.

For buyers, waiting for lower rates has its own risk. Rates could come down, but a property that fits a business's needs may no longer be available when they do.

Service businesses could be particularly important

As construction activity grows, Nome will need more than housing for incoming workers. Those workers and companies require an entire support economy.

Automotive and equipment repair, parts, trucking, storage, restaurants, lodging, offices and other service businesses could all see additional demand.

That makes existing commercial properties—particularly properties already configured for shops, garages, warehouses or mixed commercial use—worth watching closely.

The question for a commercial buyer is increasingly not simply, "What is the interest rate?"

It is also:

"What will it cost my business if I don't have the space I need when demand arrives?"

What we're watching next

The Federal Reserve meets September 15–16. While the Fed does not directly set mortgage or AHFC commercial rates, its decisions and the bond market's reaction can influence borrowing costs.

Nome Sweet Homes will continue watching both rates and commercial inventory as Nome prepares for the next several years of development.

If you're considering buying, selling or leasing commercial property in Nome, this is a good time to look at the numbers before making a decision. A higher interest rate doesn't automatically make a property a bad investment—but it does make cash flow, property condition, operating costs and purchase price more important than ever.

Nome Sweet Homes
Local knowledge for a changing Nome real estate market.