Today the Wall Street Journal reports on how rising rates and tightening lending standards are dampening deal making in the commmercial realty world causing even players as large and aggressive as Blackstone to blink. See Dawning New Realty for Real Estate:
“The change in borrowing costs was triggered April 11, when Moody's Investors Service fired a warning flare about Commercial Mortgage Backed Securities, or pools of real-estate loans that are sold to investors as bonds. Moody's said lenders' underwriting standards had become too lax during the real-estate frenzy. That warning scared investors and forced bankers to raise yields on CMBS offerings to attract investors, sending shock waves through the real-estate lending world.
The situation got worse last week when Treasury bond yields, on which the loans are based, shot up.”
“It's going to bring the price of real estate down,” says Gary Mozer, principal with George Smith Partners, a Los Angeles-based commercial real-estate finance firm. The “meltdown” in the CMBS market, as Mr. Mozer calls it, has caused a “sea change” in the amount that real-estate investors can borrow. “People can't pay as much for property because they can't get as much positive leverage,” he says.
Mr. Mozer estimates borrowers can get 20% to 30% less than they could have eight weeks ago
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