“There are no CMBS lenders at this point in time, so that takes a huge amount of lenders out of the game,” says Rifkind. Indeed, domestic CMBS issuance totaled $12.1 billion in 2008, a dramatic drop from $230 billion in 2007 and $203 billion in 2006. During the second half of 2008, there was no issuance.

The moribund CMBS market is only part of the story when it comes to a shrinking supply of lending sources, explains Rifkind. “Among smaller regional banks, there is just a handful of lenders in any particular region who are lending. Your first-tier national banks are lending, but we're finding they're only lending to their best borrowers.”

Owners of blue-chip commercial real estate assets that are conservatively underwritten stand the best chance of getting financing. There are many lenders who will tell you that they're in the market,” says Rifkind, “but when you really drill down on a specific transaction, you find out that they really aren't, and they're really unsure of when they will be again.”

Loan-to-values are averaging 65% in today's marketplace, Rifkind says, lower than the 70% to 79% range cited by owners and developers in the survey. The discrepancy might be explained by the legendary optimism of the owner/developer community. Also, a significant number of respondents are active in the multifamily market, where 70% loan-to-value is more common through agency lenders like Fannie Mae.

Carter, a developer with three decades of experience, concurs. He is encountering loan-to-values in the 60% to 65% range, down from 75% to 80% over the past year. Loan-to-cost, meanwhile, now ranges from 50% to 60%, down from 70% to 80% a year ago, adds Carter.

Interest rate toss-up

Trying to determine the future direction of long-term mortgage rates is like predicting the outcome of playoff football — anything can happen. But with so much monetary and fiscal stimulus being injected into the U.S. economy, the conventional wisdom is that rates will increase in the year ahead, right?

Respondents are divided on that issue. While nearly half of respondents (46%) expect that long-term mortgage rates will be higher 12 months from now, another 21% expect them to remain the same, and 20% expect them to fall. Some 12% of respondents say they don't know [Figure 8]. Among those expecting an increase in long-term mortgage rates in the year ahead, most believe it will be 2% or less.

Friedman of Associated Estates says that as the debt markets begin to stabilize in 2009 and financial alternatives re-emerge, most notably CMBS, borrowers will have greater access to long-term debt. But those loan proceeds are likely to come attached with a higher interest rate than many borrowers anticipate, he says.

“I think rates will rise above where people thought they would be, and the underlying Treasuries should increase because of expected inflation down the road from all the feeding of the economy that the federal government has done,” says Friedman. On Jan. 20, the 10-year Treasury yield stood at 2.38%, down from approximately 3.7% a year ago.

Respondents also are split on the direction of short-term mortgage rates. More than four out of 10 respondents (42%) expect rates to rise over the next year, while 25% say they will remain the same and 20% expect them to go lower. Another 12% do not know.

Ultimately, the future health of the economy will play a big factor in the direction of interest rates. Borrowers indicate that the weaker economic conditions, not the higher cost of capital, have proven to be the biggest factor in their ability to obtain financing. On a scale of 1 to 5, the impact of weaker economic conditions rated 3.9 compared with 3.5 for the higher cost of capital [Figure 9]. At the low end of the impact scale was the takeover of Fannie and Freddie (2.3).

Friedman expresses confidence that both Fannie and Freddie, which have a social responsibility in the housing and apartment market, will endure in some capacity. “I am certain the new [Obama] administration recognizes the importance of doing what it can to keep housing affordability at the best possible level.”

Matt Valley is editor-in-chief.

Survey Methodology

Data for the 2009 Borrower Trends Survey was collected Oct. 29 through Dec. 5, 2008. Penton Research mailed questionnaires to 1,500 subscribers of National Real Estate Investor in late October. Subscribers were selected on an nth name basis from the magazine's database of commercial real estate owners and developers. The purpose of the survey was to quantify borrowing activity. The questionnaire yielded 289 completed surveys for an effective response rate of 19.4%. This report also is available on nreionline.com. For more information, please contact Editor matt Valley at matt.valley@penton.com