More stories keep cropping up analyzing the potential contagion of the subprime mortgage meltdown to commercial real estate.
"The sale prices of assets are going to decrease," said Robert Horowitz, of Cooper-Horowitz Inc, which arranges financing. "Prices are a reflection of what people can borrow. The buyers can't get the level of financing that they were able to obtain six months ago."
Additionally, commercial mortgage interest rates have gone up a minimum of half a percentage point, he said.
Because of the turmoil in credit markets that started in the residential mortgage sector, commercial mortgage lenders are charging higher interest rates and lending lower portions of the purchase price -- despite lower vacancy rates and higher rental rates.
In addition, in the story Wachovia's Brian Lancaster estimates that new loans in the CMBS pools have raised some borrowing costs 80 basis points to 180 basis points -- or as much as nearly 2 percentage points.
Stejkowski has a less somber view of what's going on, characterizing more as a return to the norm after a period of excessive frothiness in the CMBS market made things get a little out of control.
Specifically, he writes:
Other than the fact that lenders are having some trouble pricing loans, I guess I don't see the "woe," unless I represent a client that bought a property at a 4 cap who is trying to flip it. The CMBS spreads have been crazy low for a long time, and the freewheeling nature of some of the lending had to end sometime. Maybe I am naive, but what I am seeing here is largely a return to the status quo ante of, say, seven years ago.
“The overall negative pricing impact on commercial mortgage spreads has been about 20 to 25 basis points on 10-year fixed-rate mortgages,” Jones Lang LaSalle, a real estate services company, said in a research report last week. “The greater concern has been our increased difficulty in obtaining debt quotes; when quotes are available, the spreads are often significantly wider than recent experience.”
In the past few weeks, as the drumbeat of problems in the residential mortgage market has picked up, so has the lack of confidence in the CMBS market. “The market for debt financing for commercial properties got smaller and it has repriced, making it more difficult and expensive to put atogether,” said Jere Lucey of Jones Lang LaSalle real estate investment banking group in New York.
In addition, Real Estate Bloggers links to an interesting AP story called "How the Mortgage Crisis Arose and Infected the World" that provides a nice, concise overview of how we go to where we are from the initial breaking of subprime problems.
There was also an excellent analysis piece in Friday's Wall St. Journal called, "How Credit Go So Easy And Why It's Tightening", that traces the the inflating of the credit bubble back to Alan Greenspan's policy of easing credit in response to the crash of the Asian Tiger economies and the bursting of the tech/equity bubble.
Previous relevant blog entries:
- August 6, Torto Wheaton on the Debt Crisis
- August 3, Credit Crunch Takes Its Toll
- July 30, Key Financing Indicators
- July 24, Sub-Prime Lending's Effect on Commercial Real Estate