{"id":4184,"date":"2022-06-20T10:42:21","date_gmt":"2022-06-20T10:42:21","guid":{"rendered":"https:\/\/www.yardimatrix.com\/blog\/?p=4184"},"modified":"2023-09-13T09:13:26","modified_gmt":"2023-09-13T09:13:26","slug":"cre-deal-flow-set-to-tumble-crefc","status":"publish","type":"post","link":"https:\/\/www.yardimatrix.com\/blog\/cre-deal-flow-set-to-tumble-crefc\/","title":{"rendered":"CRE Deal Flow Set to Tumble: CREFC"},"content":{"rendered":"\n

After a decade of strong capital markets conditions, commercial real estate is set to slow while prices drop, according to panelists at the CRE Finance Council\u2019s annual conference last week.<\/strong><\/p>\n\n\n\n

The CREFC conference <\/a>took place as the <\/a> stock market was plummeting and interest rates were soaring to multi-year highs, which heightened the negative tone. The Federal Reserve raised policy rates this week by 75 basis points, the biggest one-day jump in 28 years, in a bid to cool surging inflation. The consumer price index rose to 8.6% year-over-year in May, led by spiraling housing and energy costs. The 10-year Treasury yield has increased nearly 200 basis points and topped 3.40% this week, its highest level since January 2011.<\/p>\n\n\n\n

Although commercial property fundamentals remain healthy in most sectors, the worrisome economic news increases the likelihood of a recession in coming quarters and is likely to put the industry in a holding pattern. \u201cIt\u2019s been a while since we last discussed stagflation,\u201d said CREFC executive director Lisa Pendergast. \u201cNo doubt, rising rates will impact mortgage and cap rates negatively, and recession can have a deleterious effect on property-level cash flows.\u201d<\/p>\n\n\n\n

CMBS Spreads Jump<\/strong><\/h4>\n\n\n\n

Lenders and borrowers have been hit with a double whammy. Not only are interest rates rising but risk spreads are widening, as well. For example, the spread of senior 10-year triple-A CMBS has increased by more than 80 basis points over the past year, with that class priced to yield 145 basis points over Treasuries in a deal issued this week. The combination of rising rates and higher-risk spreads increased the cost of mortgage debt by 200-250 basis points since the beginning of the year. That creates ripple effects throughout the industry, including:<\/p>\n\n\n\n

\"\"<\/figure>\n\n\n\n
    \n
  • Acquisition yields have increased, which erodes pricing. Anecdotally, property values are down 10-15%, but the decline could extend further if the capital markets continue to erode.<\/li>\n\n\n\n
  • Transaction activity will plummet. \u201cThe market is going to slow while people digest what\u2019s going on in the world,\u201d said one CREFC panelist.<\/li>\n\n\n\n
  • Mortgage activity is dropping. \u201cAll-in rates have gone up so much so fast that borrowers are looking at the rate (offered) and saying, \u2018No, thank you,\u2019\u201d said a CREFC panelist.<\/li>\n\n\n\n
  • The increase in rates has the biggest impact on securitization programs, because their origination quotes are directly tied to bond spreads. \u201cInvestors don\u2019t want to be in a position where they buy a bond and the next day spreads are wider,\u201d said a CREFC speaker.<\/li>\n\n\n\n
  • There will also be a deleterious effect on refinancing maturing loans that were originated when rates were lower. Borrowers may be refinancing with less leverage and higher rates, leading to an increase in defaults and\/or maturity extensions.<\/li>\n<\/ul>\n\n\n\n

    Headed for a Downturn?<\/strong><\/h4>\n\n\n\n

    The new capital markets environment has even impacted government-sponsored enterprises Fannie Mae and Freddie Mac, which have raised rates and \u201care not as competitive as other capital sources,\u201d according to multifamily loan executives.<\/p>\n\n\n\n

    Not every source of mortgage debt will be on the sidelines, though. Portfolio lenders do not have the same mark-to-market constraints and hedging risks of securitized lenders.<\/p>\n\n\n\n

    Many of the participants at the CREFC event\u2014which hit an all-time-high attendance record of 1,424\u2014forecast that market activity will slow dramatically at least through the end of the summer. Whether the dip extends beyond then will depend on how the economy performs in the second half of the year and the Fed\u2019s ability to slow inflation without creating a sharp recession.<\/p>\n\n\n\n

    <\/div>\n","protected":false},"excerpt":{"rendered":"

    After a decade of strong capital markets conditions, commercial real estate is set to slow while prices drop, according to panelists at the CRE Finance Council\u2019s annual conference last week. The CREFC conference took place as the  stock market was plummeting and interest rates were soaring to multi-year highs, which heightened the negative tone. The Federal […]<\/p>\n","protected":false},"author":463,"featured_media":4187,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[248,23],"tags":[450],"class_list":["post-4184","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-commentary","category-studies-and-guides","tag-capital-markets"],"yoast_head":"\nCRE Deal Flow Set to Tumble: CREFC - Yardi Matrix Blog<\/title>\n<meta name=\"description\" content=\"After a decade of strong capital markets conditions, commercial real estate is set to slow while prices drop, according to panelists at the CRE Finance Council.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.yardimatrix.com\/blog\/cre-deal-flow-set-to-tumble-crefc\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"CRE Deal Flow Set to Tumble: CREFC\" \/>\n<meta property=\"og:description\" content=\"After a decade of strong capital markets conditions, commercial real estate is set to slow while prices drop, according to panelists at the CRE Finance Council.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.yardimatrix.com\/blog\/cre-deal-flow-set-to-tumble-crefc\/\" \/>\n<meta property=\"og:site_name\" content=\"Yardi Matrix Blog\" \/>\n<meta property=\"article:published_time\" content=\"2022-06-20T10:42:21+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2023-09-13T09:13:26+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/www.yardimatrix.com\/blog\/wp-content\/uploads\/sites\/39\/2022\/06\/ryunosuke-kikuno-6KJGqrIOzzU-unsplash.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"1200\" \/>\n\t<meta property=\"og:image:height\" content=\"798\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"Paul Fiorilla\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Paul Fiorilla\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"3 minutes\" \/>\n<!-- \/ Yoast SEO Premium plugin. -->","yoast_head_json":{"title":"CRE Deal Flow Set to Tumble: CREFC - 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