Commercial real estate values could start to decline due to the lack of good financing. Until one year ago, half of all new commercial real estate loans were made by conduits. Conduits offered life company level interest rates to average quality commercial properties. Conduits were regularly making loans on retail properties as high as 80% loan-to-value, and these loans were non-recourse as well. It's no wonder commercial real estate cap rates were so low.
But conduit lending is down by 90%, and the spreads over Treasuries have increased by 200+ basis points. As a result, commercial real estate does not cash flow nearly as well.
These changes will negatively impact commercial real estate values. Even if rental rates and occupancy rates remain unchanged (unlikely due to the recession), the lack of favorable financing alone could lead to a 15% decline in commercial real estate values.
Commercial real estate financing from banks, fortunately, is still available. You can apply to 750 different commercial lenders with just one simple mini-app using C-Loans.com. And C-Loans is free.
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