Mortgage Observer

Commercial Property Markets in a World of Rising Rates

Sam Chandan.

More than three months after the summer’s initial spike in Treasury yields, commercial real estate investors are breathing a little easier. Third-quarter 2013 data show a modest impact on cap rates and borrowing costs from higher interest rates; neither increased in lock step with their baseline costs of capital. In actively contested segments of the market, including most institutional markets, cap rates were flat or increased only slightly during the quarter. In the extreme, cap rates for the most coveted assets inched lower. 

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Mortgage Observer

Retail Credit Quality Will Strain as CMBS Issuance Surges

Sam Chandan.

Fueled by investors’ renewed appetite for risk and the relative stability of bond yields, CMBS issuance in 2013 is pacing far ahead of last year. By early May, volume had surpassed $30 billion, roughly three times the 2012 year-to-date tally. An uptick in the number of well-qualified borrowers is only part of the story. As it expands, the credit quality of the larger underlying pool shows signs of an increasingly flexible approach to underwriting. Too many investors are unfazed by the credit drift, largely content that anchoring to existing cash flow obviates risk along other dimensions. Fitted with blinders, those investors run the chance of being outflanked by new drivers of loss, including inadequate cushions against rising interest rates. As the cyclical attention to risk dissipates, a longer list of ratings agencies in the post-crisis era still brings fresh perspectives to the marketplace. It has also invited a new round of ratings shopping. Read More