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NEW YORK - The havoc in the credit markets could reduce prices that office, industrial, apartment and shopping-centre properties have commanded over the past few years.
"The sale prices of assets are going to decrease," said Robert Horowitz of Cooper-Horowitz, which arranges financing.
"Prices are a reflection of what people can borrow. The buyers can't get the level of financing that they were able to obtain six months ago."
Additionally, commercial mortgage interest rates had gone up a minimum of half a percentage point, he said.
Because of the turmoil in credit markets that started in the residential mortgage sector, commercial mortgage lenders are charging higher interest rates and lending lower portions of the purchase price - despite lower vacancy rates and higher rental rates.
During the past couple of years, cheap money and the demand for commercial real estate allowed buyers to finance their investments by borrowing as much as 95 per cent of the purchases.
About 40 per cent of those mortgages were from the start headed for the commercial mortgage-backed securities market, usually the cheapest way to borrow money.
But borrowers with good histories looking to finance strong deals can still get loans, experts say.
"There is still capital available for well-underwritten deals," said William Rudin, president of Rudin Management, a New York real estate dynasty.
"We're being told there is capital but it's more expensive than it was two or three months ago."
Borrowers are searching for other lenders in the business of making up the difference to standard loans, called mezzanine financing.It usually comes at a higher rate.
- Reuters
