When 10-year Treasuries rise, commercial real-estate lenders take note. Most commercial-property loans are pegged to the 10-year benchmark bond. In early November — when there were few signs of an economic recovery — the yield on that bond stood at 4.120%, but had risen to 5.410% in early April, before falling to around 5.13% mid-month. At the same time, the rates on commercial loans tied to the 10-year bond have gone from about 7.0% to 7.5%.

That, say some analysts, is enough to curb lending. In 2001, with rates dropping, commercial and multifamily mortgage bankers originated real estate loans totaling $73.8 billion, a 19% increase over $62 billion in 2000, according to the Mortgage Bankers Association of America (MBA). Approximately 80% of the annual volume is from long-term loans, says Jay Brinkmann, a commercial real estate economist for MBA.

While the MBA has not issued such a projection, lenders who gathered at the association's commercial real estate finance meeting in Orlando, Fla., in February predicted that the dollar volume of commercial and multifamily loans would decrease by 20% to 25% this year. Shane Tucker, managing director of Newark, N.J.-based Prudential Mortgage Capital Co., estimates the dollar volume of his company's long-term loans will be down 10% to 15% from last year. The general rise in interest rates during the first quarter of this year is a big reason for the decline in volume, he says.

“When there is a quick rise in interest rates, it takes a while for borrowers to get comfortable,” Tucker says. “But eventually they realize they've got financings they have to do.”

Brinkmann of MBA downplays the idea that rising, long-term rates have led to decreased loan activity. “I think it's more because of the general economic uncertainty,” he says.

Estimating long-term loan origination for 2002 compared with 2001 is a “very, very hard call,” says Charles Krawitz, first vice president of Chicago-based LaSalle Bank. He predicts the origination of such loans in all of commercial real estate will be down about 15% in dollar volume.

10-YEAR U.S.TREASURY BOND YIELDS
Sept. 1, 2001 4.780%
Oct. 1, 2001 4.680%
Nov. 1, 2001 4.120%
Dec. 1, 2001 4.830%
Jan. 1, 2002 5.130%
Feb. 1, 2002 4.980%
March 1, 2002 4.850%
April 1, 2002 5.410%
April 15, 2002 5.130%
Source: Barron's/John B. Levy & Co.National Mortgage Survey.