Loans for Commercial Real Estate getting harder to find

Fed Rates Dropping, Commercial Mortgage Rates are Rising  - Why the discrepancy  ?

Feb 12, 2008.     Chris Perry, Capital Circle Group.

Over the last couple of weeks, a very strange fact is emerging.  The Fed has been cutting rates.  And most commercial borrowers  were expecting so would the cost of borrowing.  But that has not happened.  

That is not where it stopped.  Instead the commercial mortgage rates have taken an upward swing.   Not many would have expecting to reading that in early 2008, rates for borrowing have gone up!!

In the last 3 months the yield on 10 year treasury notes has fallen 1.43 percentage points, the cost of borrowing for apartment buildings, hotels, offices, retail properties and hotels climbed as much as 1.25 percentage points.  The sense of pullback when looking at commercial loans is visible across the board. 

The $3.2 trillion commercial market seems to be taking a similar direction to the residential market.  Lending standards and underwriting guidelines are being partly blamed for the scenario.

Here are some further facts which are concerning -

·         According to the Fed's Senior Loan Officer Survey, published in October, half the banks surveyed made loans more difficult to obtain in the third quarter of 2007. 

·         The average down payment lenders required rose to 23 percent of the purchase price in the fourth quarter, the highest in three years, from 19 percent in the second quarter

·         The number of new commercial mortgage-backed securities, which help fund loans, dropped 54 percent in the fourth quarter from a year earlier

The take home message for commercial borrowers – if you have a mortgage coming due this year or if you have a new purchase loan you would like approved – focus on getting the approvals ahead of time.  Yes, getting an approval should be the primary focus – and the rate question should be secondary.

Capital Circle Group, assists borrowers in finding commercial real estate lenders.

For more information send an email to reloan @ capitalcirclegroup.com.    You will need to copy paste the email address into your email program and remove the spaces around the @ sign.

A  Bloomberg article on this topic can be read here.