Owners Response to Increasing Capital Cost

Rising rates and tighter underwriting standards are signaling the end of easy money. The subprime debacle is also spilling into commercial lenders causing stricter underwriting standards resulting in deals falling apart. Leveraged investors are feeling the pinch to the lowest commercial mortgage rates in 40 years and are coming to grips with increased capital cost. The increased demand on property’s cash flow will limit available loan proceeds.

Owners need to respond by increasing value in their real estate through property improvements, leasing, redevelopment, management and expense control. Cap rates are expected to rise especially in smaller markets dominated by private investors. There is still plenty of capital out there for good projects, it’s just that the capital in more expensive than it was.

Source: Sperry Van Ness/RealSite Commercial Group