Property Market Hits Inflection Point as Debt Cost Outpaces Rent
A spike in rates this year is complicating the math for commercial real estate financing deals.
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The cost of debt on commercial property has risen so fast that it’s now more expensive to finance many real estate deals than owners currently earn from rents.
About $5.5 billion, or 28%, of new commercial mortgage-backed securities had negative leverage — where the cost of debt exceeded projected returns on investments — in the third quarter, according to a report by Moody’s Analytics. Only 8% of similar loans had negative leverage in the second quarter and barely 2% were negative in the third quarter of 2021.